YOU’D better lock in a low mortgage rate while you still can. The Federal Reserve may finally get its wish.
The Fed meets this week, and for the 10th time since mid-2004, it is going to raise the rate at which banks can borrow money. So far the financial markets that have the real say over the cost of money to consumers and businesses have defiantly kept rates down.
The markets may finally yield to the wishes of the Fed.
The clincher was Friday’s report on July employment, which showed gains of 207,000 in non-farm payrolls.
That was impressive (with an asterisk I’ll mention later) because the gain came without any help from a statistical trick that’s been juicing employment for more than a year.
As I mentioned in a column last Tuesday, July is one of only two months that the government’s Bureau of Labor Statistics – which puts the monthly report together – actually subtracts jobs from the count because it thinks an unusually large number of companies are going quietly out of business.
Friday’s 207,000-job gain came in spite of the deduction of 76,000 jobs that the government’s model thinks disappeared because of company failures.
Without that assumption the headline number would have been considerably stronger.
Last Friday’s report was the first time the job numbers were good and the assumptions were not.
That’s a win for the Bush administration, but it could come at a big price – higher interest rates.
The bond market declined on Friday’s numbers – meaning interest rates went up.
Also casting a cloud over the rate picture is the government’s announcement last week that it will revive sale of its 30-year bond.
That puts Washington in competition with everyone trying to lock in long-term low rates and it, too, could guarantee higher rates.
Now for the asterisk to the good news.
Friday’s impressive job gains came only after some tricky seasonal adjustments.
Before adjustments for the season, there were 134.7 million jobs in the U.S. during June. But the number of jobs fell to 133.5 million before seasonal adjustments in July.
That’s a decline of 1.2 million jobs – not a gain of 207,000.
In 2004 there was a loss of 1.14 million jobs before seasonal adjustments between June and July.
If those same seasonal adjustments had been kept for this year, the 207,000 gain would have been more than halved.
Whether these seasonal adjustments are valid probably won’t be determined for years (good for the politicians, bad for you).
So right now the markets will do what they always do: react to the headline figure and steadily drive interest rates up.
Get your cheap mortgage now, or maybe not at all.
jcrudele@nypost.com