Mortgage bond prices rallied the first portion of the week only to give back the gains as stocks surged. The DOW eclipsed the 9000 mark. Ben Bernanke spoke of a "jobless recovery", a situation where
employers use productivity to increase production without additional labor. This would basically be an environment where the unemployment rate remains high long after the economy is in recovery. There wasn't much data but the existing home sales data did come
in higher than expected. For the week interest rates rose by about 1/8 of a discount point.
The US Treasury will auction $115 billion of 2, 5, and 7-year notes this week. The additional debt supply may pressure rates. With so many data releases expect the market to be very volatile.
Employment Cost Index
The employment cost index is a quarterly report issued by the Department of Labor. The report measures the growth of wages, salaries, and benefits costs over a certain period of time. Though ECI
figures are usually weeks old, the data remains the best indicator of employment price pressures considering it factors employees' total compensation.
If wage pressures become evident, higher expectations of inflation also tend to arise. However, increasing compensation does not necessarily lead to increased inflationary pressures. Oftentimes, increased productivity enables employers to increase compensation
without increasing the costs of their goods or services.
It is important to note that no single economic indicator can consistently predict the future of the economy. However, the employment cost index is a closely watched release. Most of the recent Fed releases and speeches indicate inflation is a concern and market
participants remain cautious. Now is a good time to take advantage of mortgage interest rates at their current levels to avoid exposure to future market volatility.