Overview: Over the past week, weaker-than-expected data raised investor concerns about slowing economic growth, possibly even a recession, which was favorable for mortgage markets. In particular, the labor market data was surprisingly weak. As a result, mortgage rates moved lower.
The latest labor market data fell short of the anticipated levels in nearly every major category. The monthly Nonfarm Payrolls report revealed that the economy added just 114,000 jobs in July, far below the consensus forecast of 175,000, and the results from last month were revised lower. In addition, the unemployment rate unexpectedly increased from 4.1% to 4.3%, the highest reading since October 2021. While this is still a relatively low level historically, the unemployment rate has risen from a five-decade low of 3.4% that was reached in April 2023. Average hourly earnings were 3.6% higher than a year ago, also well below the consensus forecast and the lowest annual rate since May 2021. Federal Reserve officials keep a close eye on wage growth because it heavily influences future inflation rates.
Two other significant economic reports released this week by the Institute for Supply Management (ISM) revealed mixed results. The ISM Services Index rose to 51.4, slightly above the consensus forecast. By contrast, the ISM Manufacturing Index dropped to 46.8, far more than expected and the lowest level since July 2023. Since readings above 50 indicate an expansion in the sector and below indicate 50 a contraction, these reports reflect the consumer preference for services over goods since the end of pandemic restrictions.
As a result of the weakness in the latest economic data, investors have greatly increased their outlook for federal funds rate reductions by the Fed. They now anticipate that rates will be lowered at the next meeting in September, with some predicting that it will be by 50 basis points rather than the more common 25. Recent comments from Fed officials indicate general support for some loosening of monetary policy, but possibly at a slower pace than investors expect.
Job Gains (thousands)
Week Ahead
Aug. 13
Producer Price Index (PPI)
Aug. 14
Consumer Price Index (CPI)
Aug. 15
Retail Sales report
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