In June, for the first time since December 2009, the U.S. workforce shrank.

According to the Bureau of Labor Statistics, the economy shed 125,000 jobs last month even as the Unemployment Rate dropped to 9.5 percent. The drop in the Unemployment Rate is being attributed to fewer Americans looking for work.

At first glance, the jobs report looks weak but a deeper look shows something different.

Excluding the 225,000 government Census workers that recently left the workforce, the total number of employed persons actually grew by 83,000 in June. That’s 50,000 more working Americans as compared to May.

And, since the start of the year, the U.S. workforce has grown by 857,000.

Jobs growth is closely tied to economic growth because more working Americans means more disposable income which, in turn, stokes consumer spending. Job growth is better than job loss.

Consumer spending makes up the majority of the U.S. economy so as consumer spending grows, investor mentality tends to shifts toward “return on principal” (i.e. stock markets) from “safety of principal” (i.e. bond markets).

A move like this is often bad for home affordability because falling demand for bonds is tied to higher mortgage rates. In addition, with the growing number of Americans earning a paycheck, demand for homes is likely to increase, thereby helping to push home prices higher.

Overall, therefore, the jobs report should be bad for rate shoppers and home buyers in in Santa Rosa. Except, the markets aren’t reacting that way. For now, mortgage rates are slightly improved since the jobs report’s release.

Perhaps Wall Street is watching the wrong figures, but don’t let that be your loss. If you’re shopping for a mortgage, a home, or both, now may be your best time to make a move; while rates are still low; with home prices down; before traders change their tune.

Because when markets change, it’ll likely happen fast.

On the first Friday of each month, the Bureau of Labor Statistics releases its Non-Farm Payrolls data from the month prior. 

The release is more commonly called “the jobs report” — a major factor in mortgage rates and monthly payments.

Especially now.

With the recession officially over and growth returning to the U.S. economy, the recovery’s next frontier is jobs. As job growth increases, home affordability should take a hit.  Here’s why:

1. As the number of working Americans increases, so should total consumer spending
2. As consumer spending increases, so should a return to risk-taking on Wall Street
3. As risk-taking returns to Wall Street, bond markets should start to lose

Mortgage rates, therefore, should rise.

Furthermore, as the jobs market stabilizes and recovers, renters should be more apt to buy their first home, and homeowners should be apt to up-size.  More home buyers in Santa Rosa means more competition for homes and higher home prices typically follow.

Job growth can be trickle-up for housing.

Today, however, the jobs data was not so strong. According to the government, 431,000 jobs were created in May, but of those new jobs, 95.4% represented temporary staffing for the 2010 Census.  The number of private-sector jobs created fell well short of expectations and Wall Street is voting with its dollars right now.  Mortgage bonds are gaining so, therefore, rates are falling.

The May 2010 jobs report may not reflect well on the economy, but home affordability in California and around the country is improving because of it.

On the first Friday of every month, the U.S. government releases its Non-Farm Payrolls report. 

More commonly called “the jobs report”, Non-Farm Payrolls is a major market mover. The number of working Americans is directly tied to the health of the economy which, in turn, drives the stock and bond markets.

In general, when jobs numbers improve, it’s good for stocks and bad for mortgage bonds. It follows, therefore, that conforming mortgage rates in California rise because rates always move opposite of mortgage bond prices.

Conversely, when jobs numbers worsen, it tends to be bad for stocks and good for mortgage bonds.  Mortgage rates fall.

Today, markets are behaving a bit differently.

Despite 290,000 jobs created in April 2010 — nearly twice the expected amount — and a 40 percent upward revision of March’s numbers, mortgage rates are essentially unchanged. 

In a normal environment, rates would be higher.  Today is not normal.

Today is a departure because, for all of the jobs report’s import to Wall Street, it’s less important to markets than what’s happening in Greece right now.

Greece is struggling to meet its debt obligations and its citizens are rioting.

Until a debt solution for Greece is made that sticks, unrest in the region will drive safe haven buying both domestically and abroad. U.S. mortgage bonds will gain on that movement because mortgage bonds are “safe”, and mortgage rates will fall.

Indeed, this is exactly what’s been happening since the start of April. Mortgage markets have been rallying for 5 weeks.

So, today’s jobs news is terrific for the economy and mortgage rates should be rising because of it.  But, they’re not. Consider taking advantage — lock in a rate.

Conforming and FHA mortgage rates in California have improved over the last 10 days, but that could all change this Friday with the release of February’s Non-Farm Payrolls report.

Non-Farm Payrolls is the official name of the government’s monthly jobs report and, given the fragile state of the U.S. economy, Wall Street will be watching it closely.

Mortgage rates could spike come Friday morning.

Jobs are an important part of the nation’s recovery. Among other concerns, unemployed Americans don’t spend as much money on goods and services, and are more likely to default on a mortgage. This retards economic growth and increases the potential for foreclosures.

When jobs numbers worsen, therefore, it follows that economic projections worsen, too.

Poor employment figures draw money away from the stock markets and into less-risky bond markets, including mortgage-backed bonds.  Mortgage rates improve as a result. Conversely, when jobs numbers improve, stock markets gain and bond markets worsen.

Analysts expect that a net 30,000 jobs were lost in February.

The Bureau of Labor Statistics press release hits at 8:30 A.M. ET, roughly an hour before Friday’s mortgage pricing will be available to consumers. If you’re worried about rates rising on the heels of a strong jobs report, therefore, be sure to get your rate lock in today instead. Once Friday gets here, it may be too late.

Despite the headlines, it’s important to remember that December’s jobs report wasn’t all bad news. 

Sure, the economy shed 85,000 jobs last month and the Unemployment Rate failed to dip below 10%, but for home buyers and rate shoppers in Santa Rosa , the news was just fine.

The soft employment data led mortgage rates lower, making homes more affordable for buyers.

There is two sides to every economic coin.

Since early-2008, the U.S workforce has been closely tied to home financing. As the economy slowed and jobs were lost, Wall Streeters pulled money from the risky stock markets and moved it to of the relative safety of bond markets, instead.

Safe haven buying led mortgage bond prices higher which, in turn, caused rates to fall. Mortgage rates fell to 6 all-time lows in 2009. In a related statistic, 4.2 million jobs were lost last year.

And this is why Friday’s non-farm payrolls report was so good for buyers.

See, in November, the economy added new jobs for the first time since 2007, housing looked strong, consumer confidence was growing.  The safe haven buying reversed and mortgage rates took off.  Analysts believed the nation’s economic turnaround was complete.

But now, after December’s jobs report returned to the red, Wall Street is forced to rethink its position. Safe haven buying is back and mortgage rates are lower because of it.

Over the next few months, expect a lot of this back-and-forth action in rates. In general, positive news for the economy will be met with higher mortgage rates and negative economic news will be met with lower mortgage rates.  There will be exceptions, but the general rule should hold.