Weaker than expected Employment data and increased concerns about Europe helped mortgage rates this week, and they ended lower than where they were before the March Employment report.

While slower employment growth is painful for the country in nearly every way, this generally bad news is actually favorable for mortgage rates. Against a consensus forecast of 200K, the economy added just 120K jobs in March. The Unemployment Rate dropped to 8.2%, the lowest level since January 2009, but the decline was due to people leaving the labor force rather than finding jobs. Average Hourly Earnings, a proxy for wage growth, increased at a 2.1% annual rate. Lower than expected job gains combined with tame wage increases helped mortgage rates move lower following the data.

European economic data released this week caused investors to question whether weaker European countries will be able to successfully grow their economies while putting in place required austerity programs. Spain has become the primary cause for concern. With the fourth largest economy in Europe, economic troubles in Spain have the potential to spread across the region. Investors reacted by selling bonds in weaker countries and shifting funds to relatively safer assets, including US mortgage-backed securities (MBS). The trend reversed somewhat on Wednesday, however, when an ECB official suggested that the ECB may start purchasing the bonds of troubled nations again.

Next week, Retail Sales will be released on Monday. Retail Sales account for about 70% of economic activity. Housing Starts and Industrial Production will come out on Tuesday. Existing Home Sales will be released on Thursday. Philly Fed, Leading Indicators and Empire State Manufacturing will round out the schedule.

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