Strong labor market data mostly offset weak manufacturing data and increased concern about the pace of global economic growth this week, and mortgage rates ended a little lower.
Stronger than expected results for Friday’s key monthly Employment report were negative for mortgage rates, since they raised the outlook for future inflation. Against a consensus forecast of 180,000, the economy added a whopping 312,000 jobs in December. In addition, upward revisions added 58,000 jobs to the results for prior months.
The unemployment rate unexpectedly increased from 3.7% to 3.9%, but this was mostly due to additional workers entering the labor force, which is viewed as a sign of strength. Average hourly earnings, an indicator of wage growth, also surpassed expectations. They were 3.2% higher than a year ago, up from 3.1% last month, and matching the highest annual rate of increase since April 2009.
Friday’s strong labor market data followed a surprisingly weak manufacturing report on Thursday. The ISM national manufacturing index fell sharply from 59.3 to 54.1, far below the consensus of 58.0, and the lowest level since November 2016. Despite the shortfall, though, readings above 50.0 indicate an expansion in the sector.
This week, investors also paid close attention to comments by Fed Chair Powell on Friday. Of note, Powell said that the Fed is not on a “preset path” for monetary policy and is open to adjustments based on changing financial conditions. Investors were encouraged that the Fed may scale back the pace of monetary tightening in response to signs of slowing economic growth or financial market turbulence.
Looking ahead, the ISM national services index will be released on Monday. The minutes from the December 19 Fed meeting will come out on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials about future monetary policy and have the potential to move markets. The Consumer Price Index (CPI) will come out on Friday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. In addition, Treasury auctions on Wednesday and Thursday could influence mortgage rates.
Also note that the government shutdown which began on December 22 has caused delays in the release of some economic reports produced by government agencies and likely will continue to do so as long as it is in effect. It is generally not known in advance when the impacted data will be ready to be released.