Stronger than expected labor market data was the primary influence on mortgage rates this week. The stock market remained volatile and posted gains for the week. Mortgage rates ended a little higher.
Friday’s heavily watched Employment report showed that well above average improvement in the labor market continued for yet another month. Against a consensus forecast of 190,000, the economy added 250,000 jobs in October. The job growth was spread across many sectors of the economy including health care, construction, and manufacturing. The historically strong average of 211,000 new jobs per month seen over the past year is very unusual at this late point in the recovery cycle since the last recession. The unemployment rate remained unchanged at 3.7%, which is the lowest level since 1969. Since faster economic growth raises the outlook for future inflation, mortgage rates moved higher due to the data.
On top of this, the pace of wage growth jumped to a multi-year high. Average hourly earnings, an indicator of wage growth, were 3.1% higher than a year ago, up from 2.8% last month, and the largest annual rate of increase since 2009. While it was expected, the stronger wage growth increases the pressure on the Fed to tighten monetary policy more quickly.
Also of note this week, the data released on Monday revealed that inflation is holding steady. In September, the core PCE price index, which excludes the volatile food and energy components, was 2.0% higher than a year ago, the same annual rate of increase as last month. This is the monthly inflation indicator favored by Fed officials, and 2.0% is their stated target level.
Looking ahead, the ISM national services index will be released on Monday. The JOLTS report, which measures job openings and labor turnover rates, will be released on Tuesday. Fed officials value this data to help round out their view of the strength of the labor market. The next Fed meeting will take place on Thursday. No change in rates is expected, and investors will be looking for guidance about the pace of future policy changes. In addition, Treasury auctions on Tuesday and Wednesday could influence mortgage rates.