Tomorrow brings a highly anticipated Jobs report that has the potential to be a huge market mover. This monthly release of data offers an outlook of the pace at which the US economy is recovering. This data has more weight to investors, as new job creation is the foundation for economic recovery.
QE (Quantitative Easing) is a Fed program that injected $85 B monthly into the bond market; purchasing MBS (Mortgage Backed Securities) and US 10 year T- Bills. This has allowed for interested rates to stay low for an extended period of time. Lenders use these bond purchases to dictate the average mortgage rate. Rates hit all time lows in December 2012, and briefly touched them again this year in May 2013; after hitting all time lows a Fed announcement in May that QE will be coming to an end in the near future spiked interest rates higher and it has been uphill battle ever since. The Fed uses new Jobs created and Unemployment rate to gauge when "Tapering" will begin.
The uncertainty of when the Fed will take its training wheels off the economic recovery has keep rates at a higher level as economic data has been in line with forecasts giving incentive to end QE sooner than later. Today offered a glimpse at what to expect for tomorrow. ADP private payrolls added 176,000 new jobs in August and jobless claims came in at nearly 5 year low. These reports have added further fuel to the fire to this rising rate environment. (Job creation around 200,000 monthly signifies strong economic growth.)
If you take a look under the hood, not all the reports are quite as rosy. The Long Term Unemployment (out of job for greater than 27 weeks) rate continues to hover around 37%. With such a huge portion of the unemployed out of job for an extended period of time, the tougher it is to lower the Unemployment rate.
Tomorrow will offer the last look of important economic data before the Fed's meeting Sept 18-19. Reports continue to confirm that QE may be coming to an end soon, even if the economy is ready or not for higher interest rates to lend on.
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