Overview: Stronger than expected economic data was negative for mortgage markets over the past week. In particular, the latest labor market report exceeded expectations by a significant margin. As a result, mortgage rates ended the week higher.
The closely watched Nonfarm Payrolls report beat the forecasts in all three major components. First, the economy added 254,000 jobs in September, far above the consensus forecast of 140,000, and the results for prior months were revised higher as well. The sectors with the largest gains included hospitality, healthcare, and social assistance. In addition, the unemployment rate unexpectedly fell from 4.2% to 4.1%, the lowest level since May. Finally, average hourly earnings, an indicator of wage growth, were 4% higher than a year ago, well above the consensus forecast, and the highest annual rate of increase since March.
Two other major economic reports released over the past week by the Institute for Supply Management (ISM) revealed contrasting results. The ISM Services Index rose to 54.9, far above the consensus forecast to the highest level since February 2023. Meanwhile, the ISM Manufacturing Index was just 47.2, which fell a little short of expectations. Readings above 50 indicate an expansion in the sector, while below 50 indicates a contraction. Over the past few years, service companies have generally been increasing activity, while manufacturers have been doing the opposite.
The minutes released on Wednesday from the September 18 Federal Reserve meeting indicated that there was a bit more disagreement among officials than the meeting statement suggested. Investors were unusually split about whether the federal funds rate cut would be 25 or 50 basis points, but only one of the 12 voting officials dissented from the decision in favor of the larger reduction. However, the detailed minutes revealed that “some” additional participants would have preferred a smaller 25 basis-point cut to allow more time to assess the evolving economic outlook. Due to Friday’s surprisingly strong labor market data, comments from Fed officials have been more hawkish (in favor of tighter monetary policy) this week, and investors have scaled back their expectations for rate cuts later this year.
Job Gains (thousands)
Week Ahead
Oct. 10
Consumer Price Index (CPI)
Oct. 11
Producer Price Index (PPI)
Oct. 14
Mortgage markets closed for Columbus Day
Oct. 17
Retail Sales report
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