Strong Jobs Report Pushes Mortgage Rates Higher
The major economic news last week was not favorable for mortgage markets. The key employment report released last Friday exceeded expectations by a wide margin, and comments from the Fed suggested that rate cuts will take place at a slower pace than investors anticipate. As a result, mortgage rates ended last week higher.
Job Growth Surges
The economy added 254,000 jobs in September, well above the consensus forecast of 140,000, and the results for prior months were revised higher. The largest gains were seen in the hospitality, healthcare, and social assistance sectors. The unemployment rate unexpectedly fell from 4.2% to 4.1%, the lowest level since May. Finally, average hourly earnings were 4.0% higher than a year ago, far above the consensus forecast, and the highest level since March.
Service Sector Expansion Accelerates
Two other significant economic reports released last week by the Institute of Supply Management revealed mixed results. The ISM national services sector index jumped to 54.9, far above the consensus forecast and the highest level since February 2023. By contrast, the national manufacturing index was just 47.2, a little below expectations. Since readings above 50 indicate an expansion in the sector and below 50 a contraction, these reports continue to highlight that service companies have outperformed manufacturers over the last couple of years.
Fed Signals Slower Rate Cuts
In a speech last Monday, Fed Chair Powell indicated that the pace of lowering the federal funds rate may be slower than anticipated by investors. If the economy performs as forecasted, Powell expects that there will be another 50 basis points in rate cuts this year, while investors had priced in 75 basis points in reductions before the end of the year. He added that officials are not “in a hurry” to cut rates quickly and that future decisions will be based on incoming economic data. The news that monetary policy easing may be more gradual was negative for mortgage rates, and last Friday’s strong labor market data reinforced the case for smaller rate cuts.
Mortgage Rates for the week of 10-07-2024