The first six months of 2013 represented the best half-year for
job creation since 2006. But last Friday's jobs report cast doubt
on whether the economy can build on this momentum.
The Bureau of Labor Statistics announced that 162,000 new jobs
were created in June, the lowest total since March. To add insult
to injury, previously released figures for May and June were
revised downwards by a total of 26,000 jobs.
Until those downward revisions, the job creation numbers for the
second quarter had been 199,000 for April, and 195,000 for each of
May and June. The hope was that the employment market could build
upon this consistency and start to post in excess of 200,000 new
jobs per month. Instead, the figure of 162,000 new jobs was a
letdown. If job creation continues at that pace for the second half
of the year, it would be the worst half-year since the second half
This loss of momentum could slow the upward progress of interest
rates. This is good news for consumers looking for mortgages, but
bad news for people with money in savings accounts and other
Impact on mortgage rates
About a month ago, an encouraging report on June's employment
was released on July 5. Not coincidentally, the week that followed
saw 30-year mortgage rates hit their peak for the year at 4.51
percent. They've since slipped back, as the outlook for the economy
has begun to appear more clouded.
At under 4.5 percent, current
may be higher than they were a few months ago, but they are still
much lower than they've been throughout most of their history. They
should be low enough to remain attractive to new home buyers, and
if there are any more setbacks for the economy, some current
homeowners may even get another shot at refinancing.
Impact on savings accounts
On the opposite side of the fence, depositors in
and other interest-bearing bank offerings would welcome a rise in
While mortgage rates were quick to respond to economic
developments by rising, deposit rates have been much slower to
react. Since deposit rates represent a cost to banks, they are apt
to be slower to raise them. From a bank's perspective, there is
little reason to anticipate economic events by raising deposit
rates. Instead, they are most likely to sit back and wait until the
lending environment becomes so compelling that they have an
incentive to attract more deposits. With the recent setback in job
growth, that wait may have just gotten a little longer.
Watching for inflation
The next key development for interest rates may be the report on
July's inflation, due out on August 15. If inflation shows signs of
gathering steam, it could force interest rates higher. But it's a
losing proposition for both mortgage and savings account customers
when higher interest rates come alongside higher prices.