The numbers are out, and the Bureau of Labor Statistics reported 80,000 jobs werecreated in October, which was just slightly below expectations. As expected, themarket reaction was as volatile as the underlying numbers in the report. The Bond’s kneejerkreaction was a sharp sell-off, where the Bond was down as much as 25bp, but sincethat time, the Bond has improved and moved into positive territory after bouncing off a floorof support at the 50-day Moving Average.

Let’s go through some of the numbers:

104,000 private sector jobs were created, which was also just below expectations – andonce government job losses were factored in, the headline number was a bit worse thananticipated.

The unemployment rate dropped to 9%, from a previous reading of 9.1%. This readingcomes from the Household Survey, which is different from the Business Survey and its”birth/death model” that is used to determine the headline jobs number. The HouseholdSurvey showed more people entered the labor force, but that increase was offset by morepeople getting jobs…hence the decline in the overall rate.

A big positive in the report was once again upward revisions to prior month’s readings,which showed 102,000 more jobs created in the two previous months than what wasoriginally reported.

The takeaway from the report is that it doesn’t appear the economy is slipping into anotherrecession…at least not yet. The labor market continues to create jobs, but at a very slowand uneven pace. Until we see significant job growth, north of 150,000 each month, for asustained amount of time, we won’t see meaningful improvement in the economy orunemployment rate…which in turn means that rates should continue to hover at low levels,albeit in volatile fashion.

Also limiting how high our rates can go is the ongoing European drama. Theremoval of the referendum is one piece of uncertainty taken away from the market – andthat was a big one. However, there are still so many things that can and probably will gowrong until the European leaders put a big, realistic, attainable solution into action. Forinstance, we are watching Italy closely, whose Bond yields continue to inch higher,suggesting that their debt problems won’t easily be solved and continue to creep towardsan unmanageable state.

As we said, not just yesterday but many times over the past couple ofmonths, persistent economic weakness here in the US and the enormousuncertainty abroad should be supportive for Mortgage Bond prices over a longerterm perspective.

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