The September employment report arrived at dawn this morning, in the short term reinforcing economic optimists, dashing hopes for mortgage rates to fall to refi levels (the market is stuck near 6.5 percent), and likely to put the Fed on hold.

In the long run, this week’s economic data settled nothing. Any investor, broker, business or employee plugged into the global engine feels strength and fears nothing but inflation. Everybody else is worried about household budgets — and the house.

The first week of each month brings two definitive reports on the immediately prior month. Payrolls gained 110,000 jobs in September, about the weakish four-month average, August’s 4,000 decline revised to an 89,000 gain after the Labor Department remembered to add school teachers (not quite as incompetent as it sounds, as school openings vary year-to-year and locally; the difficulty in measuring employment and a lot of other things is “seasonal adjustment”). The second real-time data, surveys by the purchasing managers’ association, softened a bit, but were reasonably healthy.

Nothing in that data foreshadows an off-the-table core economy.

Housing, in the bubble zones, in September … off the table. This is partly the actual damage from mortgage credit starvation; partly the next stage in a correction that will run for years; the greatest immediate impact I think from the exhaustion of civilians with the whole subject of housing.

The big-media reports won’t be out until later in the month, but the inside stuff is clear. MGIC, the mortgage insurer, published its Oct. 1 housing-risk quarterly: of 73 metro areas, 30 are slowing to one degree or another, and only four are robust. That’s ugly, but those shrieking about national double-digit losses in value ignore the majority with stable conditions. Housing is local, not unified, like the stock market.

The question now — 18 months after the first alarms — Will housing weakness tip over the economy, or will global strength pull us out? How can consumers continue, energy and healthcare costs rising steeply, incomes mostly flat versus inflation, no monthly savings budget to flip to spending if necessary, home-equity ATM shut off, and now psychologically undercut by the housing-wealth effect running in reverse?

The consumer’s only other source of spending: the credit card, and those balances are showing a very rapid rise, in one report 2.5 times GDP growth. No global cavalry can rescue that pattern.

The overall picture is erosion. Financial-market commentary always expects quick resolution, like a stock’s reaction to the arrest of a chief executive. This is a slow-roller.

In an eroding situation, the Fed is supposed to intervene, at least to put a net under the ultimate break. I think the Fed is paralyzed here. If it cuts before a recession is in plain evidence, the globalists — right or wrong about their inflation fear — will more than counter, selling the dollar, bidding up commodities and energy, and selling bonds. Short rates would fall, but the fixed-mortgage decline that housing needs so badly would instead rise. This action is the work of the global “Bond Vigilantes” — any nation misbehaving on the inflation front will have its bonds sold, its rates rising until it learns its lesson. That’s the way we used to treat Argentina, Mexico, Russia. …

Thus, the Fed will have to wait for serious weakness, which means that it will be late, unable to preempt, hoping like hell that global strength will prevail. Instead, it is faltering: The central banks of Europe and England this week froze their inflation-fighting rate hikes, seeing weakness and knowing that credit conditions are vastly tighter than 60 days ago, doing their inflation-fighting work for them.

The deep unease in those banks and ours: They have been unable to relax the credit crunch (no matter what you hear on CNBC). If they could, then they could go back to normal inflation-fighting by monetary policy, easily reversed if overdone. They do not want their inflation fighting done by a goon who won’t back off on command.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at

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