ADP

Continuing evidence of deceleration.

A 150,000 jobs print Friday puts the 3 month average back to around where it was when the Fed expanded QE due last year due to cliff fears, etc.

So with CPI also weak, at least for now the Fed continues to fail on both its mandate targets. Seems the FOMC doesn’t yet appreciate the power of the interest income channels, as expanded QE means that much more interest income is being removed from the economy.

And the ‘government getting out of the way’ means less ‘free income’ for the economy, meaning increased domestic ‘borrowing to spend’/’dipping into savings’ for all practical purposes is the only way to ‘jump the gap’ of reduced govt deficit spending and sustain output and employment.

In other words, the risk is that the already narrowing govt deficit was proactively made too small to support the current domestic credit structure.

And if so, market forces work to increase govt deficit spending/restore required private sector net financial assets the ugly way- falling revenues and increased transfer payments, aka the automatic fiscal stabilizers.

Much like we’ve seen in the euro zone, the UK, Japan, etc. etc. etc. etc. etc.

ADP graph

ADP reports 135,000 private-sector jobs created in May, vs. estimate of 165,000

By Jeff Cox

June 5 (CNBC) — Private-sector job creation was weaker than expected in May, as the economy struggled to break free of what appears to be a summer slowdown on the horizon.

ADP and Moody’s Analytics reported just 135,000 new positions for the month, below expectations of 165,000.

Services were responsible for all the new jobs, adding 138,000, while the goods-producing sector lost 3,000 positions.

Construction added 5,000 workers, but that was offset by a loss of 6,000 manufacturing jobs.

The poor showing sets the stage for a possibly weak nonfarm payrolls report on Friday, when the Labor Department had been expected to show 169,000 new jobs.

Economists sometimes will use the ADP numbers to adjust their estimates for the government account, even though the private-sector count has been a historically unreliable gauge.

“The job market continues to expand, but growth has slowed since the beginning of the year,” Moody’s economist Mark Zandi said in a statement.

Financial markets offered muted reaction to the report, with stock market futures off their lows. Investors have been using the weak economic reports to fuel hopes that the Federal Reserve will continue with its aggressive easing program.

The Fed is creating money to buy $85 billion in Treasurys and mortgage-backed securities each month.

Recently, some members have suggested that the central bank begin easing its purchases, and markets in turn have been unsettled as interest rates have climbed and equities have been volatile.

A weak payrolls number Friday could go a long way toward squelching talk that the Fed will begin tapering purchases as soon as this month.

“As far as the tapering debate goes, the report does nothing to bolster expectations that the Fed will ease its foot off the pedal over the summer,” Andrew Wilkinson, chief market economist at Miller Tabak, said in a note.

mtg purchase apps down

It still all looks to me like it would look if demand was decelerating from the tax hikes and sequesters, and if QE was in fact a tax.

Mortgage Applications Drop as Interest Rates Surge

June 5 (Reuters) — Interest rates on U.S. mortgages continued to surge last week, rising above four percent for the first time in a year and driving down demand from homeowners to refinance, data from an industry group showed on Wednesday.

Fixed 30-year mortgage rates climbed 17 basis points to average 4.07 percent in the week ended May 31, the Mortgage Bankers Association said. Rates have risen by 48 basis points in the last four weeks, with the most recent upswing driven by nervousness that the Federal Reserve could slow its economic stimulus efforts sooner than had been anticipated.

Last week’s interest rate was the highest since April 2012 and the first time rates have been above 4 percent since early May of last year.

With the Fed keeping borrowing rates low through its massive bond buying program, historically cheap mortgages have been one of the drivers of the recovery in the housing sector as the affordability lured in buyers.

But the recent rise in rates could test potential buyers’ resolve. MBA’s seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, tumbled 11.5 percent last week.

Demand for refinancing was hit hardest by the acceleration in rates, with applications slumping 15.0 percent. The refinance share of total mortgage activity fell to its lowest level since July 2011 at 68 percent of applications from 71 percent the week before.

The gauge of loan requests for home purchases – a leading indicator of home sales – held up relatively better, falling just 1.6 percent.

The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

Along with low interest rates, rising prices, a decrease in foreclosures and a tighter supply of available homes have all helped the housing sector get back on its feet.

Fed chairman Ben Bernanke said last month the Fed could scale back the pace of its bond purchases at one of the “next few meetings” if the economic recovery looked set to maintain forward momentum.

The Fed is currently buying $85 billion a month in bonds and mortgage-backed securities. Along with some improving economic data, the comments sowed concerns among investors that the Fed’s ultra-loose policy could end sooner than expected.