The Labor Department reported that 103,000 jobs were created in December, and private job growth was 113,000. While these numbers were below the recently ramped up expectations, they do show that the trend in the labor market is improving. Also noteworthy are the upward revisions to the prior two months readings, showing 70,000 more jobs created than had been previously reported.

While unemployment figures could expect to be lower when job-growth increases, the real shocker in the report was the size of the decline in the unemployment rate to 9.4%, which is the lowest unemployment rate since May of 2009.

So what did we learn from this Jobs Report?

1. While positive news, this jobs number was still soft enough to support the Fed continuing their plans for a full dosage of QE2 for the economy and this won’t be good for bonds and home loan rates, as it carries some inflation threat down the road.
2. The recent tax package and lower tax rate extensions have not yet had enough time to be seen or felt in the economy, so those factors should help provide further improvement in the labor market in future months but also will create inflation – bad news for bonds and home loan rates.

The Fed seems intent on creating inflation, lowering the unemployment rate and raising stock prices. QE2 will likely keep coming until the employment picture improves significantly, and this is all going to be unfriendly for bonds and home loan rates ahead.