Mortgage Rates Up – Highest Levels of the Year
The major economic data released last week revealed that the labor market remains tight, supporting the case for additional monetary policy tightening from the Fed. As a result, mortgage rates climbed to the highest levels of the year.
Strong Wage Growth
The latest key Employment report contained mixed news for mortgage markets. While job growth may be slowing from its recent rapid pace back to more typical levels, the unemployment rate is extremely low and wage growth remains strong. The economy added just 209,000 jobs in June, below the consensus forecast of 240,000, and negative revisions reduced the results for prior months by 110,000. This was the smallest monthly increase in jobs since December 2020.
Wage Growth Signals Possible Federal Rate Increase
The unemployment rate declined from 3.7% to 3.6%, matching expectations. Average hourly earnings, an indicator of wage growth, increased 0.4% from April, slightly above the consensus forecast. Earnings were 4.4% higher than a year ago, the same annual rate of increase as last month. Fed officials keep a close eye on wage growth because it generally raises future inflationary pressures. Investors now widely anticipate that the Fed will increase the federal funds rate by another 25 basis points at its next meeting on July 27, but they are split about whether there will be a second rate hike later this year.
Trend Continues in Services Over Goods
Two other significant economic reports released last week, from the Institute of Supply Management, revealed starkly different results. The ISM national services sector index rose far more than expected to 53.9, the strongest reading in four months. By contrast, the ISM national manufacturing index fell to 46.0, the lowest level since May 2020 early in the pandemic. Since readings above 50 indicate an expansion in the sector and below 50 a contraction, this data continues to highlight the consumer preference for services over goods.
Major Economic News Due This Week
Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy. For economic reports, the most highly anticipated report will be the Consumer Price Index (CPI) on Wednesday. CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services. Beyond that, the Producer Price Index (PPI) will be released on Thursday and Import Prices on Friday.
Mortgage Rates for the week of 7-10-2023