The August jobs report continued to show progress as non-farm payroll employment increased by 1.371 million as the unemployment rate fell to 8.40%. Prior to the COVID-19 outbreak, the unemployment rate was 3.50%. While the jobs picture has improved a great deal from the April high of 14.70%, we still have a long way to go. Also, these numbers don’t take into consideration white-collar workers who have taken pay cuts or whose bonus structure has been adjusted downwards. These high-income earners account for a lot more consumption so it will be interesting to see how consumption looks for the biggest buyers of goods and services in the coming months as the pandemic continues to limit economic activity. Also, the pace of employment gains appears to be slowing as the U.S. heads into the fall and winter months. How the virus reacts to cooler weather is weighing on all of us.
Treasury and mortgage bond yields traded higher on good, but not great, jobs data. What’s ironic about the move up in interest rates today is that the equity markets are experiencing the heaviest selling pressure since June which typically pushes bond yields lower. With Central Banks printing literally trillions of dollars in currency, the fear is that inflation will finally arrive as evidenced by the hint of upward-moving hourly earnings data which came in well above expectations. This fear seems to be of bigger concern than the recent market volatility. Also, the concentration in mega-tech stocks is where a lot of the carnage is being felt as momentum stocks give up gains, and valuation and fundamentals are being discussed as the reason to buy stocks. Only time will tell if the market is moving past momentum trading. The gains in the tech sector specifically have been positive for those investors who were invested in this sector and have helped increase net worth and consumer confidence.
In mortgage news, our local-based banks and credit unions continue to offer a wonderful combination of intelligent underwriting and very fair pricing. Purchase transactions are being reviewed quickly and the Southern California housing market is very healthy. Insignia Mortgage continues to offer unique products to help our wide swath of borrowers obtain financing.