Today is a strange day in a strange time.

The Fed has begun gradually to withdraw support for the mortgage market, but mortgage rates are improving (back toward 5 percent) versus the 10-year Treasury.

The unemployment rate spiked to 10.2 percent, but "nonfarm payrolls" in October, net of prior-months’ revisions, contracted far less than expected: only by 97,000 jobs.

The recovery vs. no-recovery debaters are still at it, but the dominant and growing group is uncertain. Not just about growth vs. not, but unsure about economic structure going forward, and distrusting more and more of the old models and indicators.

Best evidence: the bad case of whiplash in stocks, with volatility rising again.

As always, one piece at a time: rates first, then jobs, then measure the economy.

The 10-year T-note has held 3.5 percent (again), despite massive new Treasury borrowing coming next week — $40 billion in 3-year T-notes, $25 billion in 10-year T-notes, and $16 billion in 30-year T-notes.

The best shot at lower rates will come near the end of that binge at mid-week. The good performance of mortgages may flow from something simple: a net-to-investor yield at 4.5 percent looks pretty good compared to alternatives (cash, stocks).

Also, the economic optimists arguing for a rate hike look more mistaken by the hour.

Unemployment’s 10.2 percent was a 26-year-record shocker, offset by positive revisions in the payroll survey taken among larger employers, which are doing better than smaller ones.

However, the small ones and startups are the engines of job growth, still in bad trouble. Under-employment — people wanting more work but unable to find it — spiked to 17.5 percent in October.

The sunshine-blowers were thrilled at a 9.3 percent leap in productivity, which traditionally would be good news, a precursor to business expansion. However, productivity is production divided by people at work, and the "improvement" this time just reflects fewer people in that ratio, also shown in a 5.2 percent drop in unit labor costs. …CONTINUED

The cause of poor American job creation (about the same number of people at work as 10 years ago) is another huge argument, from math scores to parenting to unions to capital, regulation, deregulation, innovation, automation, motivation … on and on.

However, the most powerful force may be China exporting low wages, along with sneakers. Desperate to soak up its own excess labor, it runs its export engine hot by undervaluing the yuan and forcing down internal wages.

As we try to devalue the dollar to mitigate the undermining, China devalues just as fast. American joblessness aside, "competitive devaluation" is unstable, and in this form is heavily deflationary.

One last employment note: Health care jobs last month rose by 29,000, up 597,000 during the recession. If ever there were a sector impervious to market forces …

Until we agree on how to measure "recovery," we can’t begin to resolve the discussions about whether we’re having one or how to get one. Traditionally, once any growth at all begins at recession-bottom, it compounds rapidly and we blaze off to full recovery.

All post-World War II recessions have had similar experience, so the optimists and the fancy econometric software today assume that any growth indicator means a rocket ahead. However, the agnostics, skeptics and grumps are worried about levels of activity, unsatisfied by positive slope.

This week we got the Institute for Supply Management survey of manufacturing for October, at 55.7 in pink-of-health. The recession trough was 32.9 last December, broke 40 in April, and crossed 50 breakeven to growth in August.

However, the ISM measures change, not level. The Fed measures industrial production — the level — by index, and in 2002 the index score was 100. At the peak of the last expansion in September 2007, IP reached 114.4; at the pit in June this year, it hit 95.8; since then it has risen only to 98.5.

Both ISM and IP are correct. We do have some shift to growth, but the level of activity is 15.9 percent below peak, lower than 10 years ago and rising very slowly. No chance of inflation, and no recovery worthy of the name.

The Fed is fully justified in keeping rates "exceptionally low for an extended period."

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


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