The monthly jobs report is always the most watched indicator of strength in the economy, this month the focus has been more intent because this is also the last report before the Fed open Market Committee meats at the beginning of November. The reason for the extra focus is that the Fed has indicated that they are prepared to move forward with another round of quantitative easing, or pumping more money into the economy in an effort to shock the economy back to life. A good report showing higher than expected job creation would likely push this effort back into a wait an see mode. That didn’t happen. The BLS report showed a gain of 64,000 private level jobs, but this was offset by the loss of 159,000 government jobs (census workers and local government job losses), for a net loss of 95,000 jobs. The two previous month’s reports were also revised lower, and the unemployment rate stayed at 9.6%. This is nowhere near as bad as the hundreds of thousands of jobs lost each month throughout last year, but it takes about 125,000 new jobs each month just to make up for new people entering the market. So it is a bad report.  

The Fed meets next for 2 days on November 2nd and 3rd, and it is now expected that they will announce a program of quantitative easing. The concern of the economy slipping into a new recession (officially we are out of it) and the fear of deflation taking hold are now trumping any worries of inflation. With short term rates already set as low as they can go (the Fed Funds rate is 0-.25% to the big banks) the last big weapon in the Fed’s arsenal is the control of the money supply. Quantitative easing means the Fed is likely to start a program of buying back Treasuries and Mortgage bonds, to get more money flowing in the economy, and to drive down effective rates so that people are more willing to spend, or invest in new ventures rather than sitting with a minimal return. Mortgage bonds, and mortgage rates, have improved this week, and they may improve more now that there is confirmation that the program is coming. Rates are now as low as they have ever been, but this won’t help everyone. There are too many people who own homes and have comparatively high mortgage rates, but they can’t refinance due to tightened underwriting guidelines and loss of home equity. But there are plenty of people who will be able to take advantage of this. If you have been sitting on the fence waiting for the right time to refinance, or are thinking about buying a home but not sure if the time is right, it is time to get your documents together.

Peter Thompson 630-479-6424

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