The Employment Situation report, also known as nonfarm payrolls or simply the Jobs Report, is the single most influential piece of economic news each month, at least as far as mortgage rates are concerned. Friday’s report was a shocker.

The report shows how many jobs were created or lost during the previous month. If a high number of jobs were gained, the economy is doing well and the Fed may slow its Quantitative Easing (QE3) program, which has kept rates artificially low since September 2012.

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This month’s Jobs Report, released Friday January 10, 2014, came as a surprise to analysts and investors. Only 74,000 jobs were created in December 2013, when the consensus was for around 200,000. The low number indicates that 1) the economy may not be doing as well as previous indicators might suggest; and, 2) the Federal Reserve may not end its QE3 program as quickly as many had assumed.

A struggling economy means lower rates

In a healthy economy, mortgage interest rates are higher than the unemployment rate as a general rule. In the mid- to late-2000s, unemployment hovered around the 5% mark, while rates were in the 6% to 7% range.

But when the housing bubble burst, the trend reversed. Unemployment went as high as 10%, while government action pushed mortgage rates well below that – down to the low 3% range in late 2012.

But as the economy improves, the unemployment rate has slowly dropped while mortgage rates continue to go up. If and when we see economic activity like we did in the mid-2000s, we can expect the unemployment rate to be equal to or lower than mortgage rates.

This jobs report was a blip in the radar, however. It bucked the trend of a better employment situation and worsening rates. For the first time since late 2013, mortgage rates seem to be improving again.

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Will we see Rates in the 3’s like in 2012?

Many hopeful homeowners may be waiting to buy or refinance for when they see 30-year fixed rates in the 3’s like we saw in late 2012. They may not be happy to hear that those rates may be gone for good.

But that shouldn’t deter current and future home buyers from buying or refinancing. Rates are still in the mid 4% range, which is vastly better than most of mortgage history. Rates were closer to 8% less than 15 years ago.

Will we see rates in the 7-8% range again? We hope not, but the overall trend is for rising rates. However, patient homeowners can capitalize on brief periods of falling rates like we’re in right now.

How should you play this week’s falling rates? In all reality, you should lock in a rate now. Rates are on the rise through 2014 and will most likely end up in the low- to mid-5’s by the end of the year. It’s just a matter of time.

If you see a rate lower than has been available during the last few months, it will probably only be around for a few days before the next positive economic indicator is released and investors once again push up rates.

Make the call to lock in your rate before rates jump again. Just a small rate increase can cost you a lot in buying power.

The Fed could cause Rates to Fall Further

Although we are in a rising rate environment through 2014, we may see rates fall from today’s levels if the Fed makes a surprise move to continue QE3 longer than expected.

The Federal Reserve has been pumping $85 billion per month into mortgage backed securities and Treasury markets, creating demand that drives down interest rates. But in December the Fed announced a reduction in the program, to $75 billion per month starting in January 2014.

While not a significant number, this action was symbolically significant. It’s the first time in 16 months that the Fed has reduced QE3. It’s a concrete indicator of the long, steady reduction in the program until markets are fully weaned off government assistance.

But if the Fed decides to keep the QE3 program at current levels for a longer period than investors expect, rates could drop. Most analysts expect the Fed to reduce QE3 by $10 billion per month at the next Fed meeting on January 28 and 29, 2014. The President of the Richmond, Va. Federal Reserve branch recently stated that the U.S. economy is on the upswing, and it would take more bad news than one sour jobs report to slow QE3 tapering.

Because continued tapering is almost a given, rates could drop significantly if no reduction is announced in the January Fed meeting.

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Unemployment rate lowest in over 5 years – but that’s not a good thing       

The unemployment rate dropped to 6.7% from 7.0%. The last time unemployment was this low was October 2008.

On the surface that sounds like great news for the economy, but there’s another factor to consider: a reduction in labor force.

In plain terms, the unemployment rate only counts people who are actively looking for work. Those who have simply given up trying to find a job are not counted.

While 74,000 jobs were added to the economy in December, 347,000 people simply gave up looking for employment. This reduction in the labor force made the unemployment rate drop to 6.7%. Ironically, a lower unemployment number signals a weaker economy.

In a great economy, people who are looking for work can find it. The vast number of people throwing in the towel will be a factor the Fed considers when it decides on QE3 actions.

If we see a similar labor force contraction on the next Employment Situation report released Friday February 7, 2014, the Fed could step in and announce a slower taper of QE3 during their March 18-19, 2014 meeting, spurring low mortgage rates.

Lock in today’s mortgage rates to hedge against future uncertainty

When it comes to mortgage rates, one piece of news can swing rates better or worse. Typically, wild rate swings are in a negative direction. Rates tend to improve slowly – over weeks at a time – and worsen quickly – usually within one business day.

Hedge against negative swings by contacting a lender, getting a quote, and locking in today’s low rates for your home purchase or refinance.

Check back here at MyMortgageInsider.com for the latest rate updates and mortgage news.