Fed rate to stay put.

Thursday, September 04, 2008

Mortgage interest rates edged fractionally lower this morning as data showing a surprise jump in weekly jobless claims and a sizable drop in second-quarter unit labor costs reinforced expectations for a mortgage market friendly August nonfarm payroll report tomorrow morning (8:30 a.m. ET scheduled release).

Even though the weekly initial jobless claims survey period fell outside the data collection time frame for the August nonfarm payroll report, the surprising 15,000 surge in claims for unemployment benefits during the week ended August 30^th clearly underscores a deteriorating job market which threatens to further erode economic growth in coming months.

As if to highlight that last point - the Labor Department made the final revision to their second-quarter Productivity and Unit Labor Costs figures. Productivity, a measure of employee output per hour, rose at a very solid 4.3% annualized pace over the past three months while unit labor costs registered a 0.5% decline for the same period.

In a separate report, the Institute of Supply Management said its Service Sector index, which is designed to measure activity levels for roughly 90% of the economy, increased to a reading of 50.6 from 49.5 in July. Analysts were quick to point-out that most of the month-over-month gain in the service sector index came as businesses scrambled to maintain market share by cutting prices. Also noteworthy, the component of the index that measures employment levels marked its fourth consecutive monthly decline - dropping to a reading of 45.4 in August from 47.1 the prior month.

Muted inflation pressures, a puny labor sector and no sign of a potential short-term rate hike from the Fed are all generally the "stuff" that steady to lower mortgage interest rates are made of.

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