News/Blog

Impressive Job Gains

The important labor market and manufacturing data released this week were much stronger than expected. Despite this, however, mortgage rates ended the week with little change.

Friday’s highly anticipated monthly Employment report revealed very impressive results. In March, the economy gained 916,000 jobs, far above the consensus forecast of 625,000, and revisions added 156,000 jobs to the results for prior months. Particular strength was seen in the hospitality and construction sectors.

The unemployment rate dropped from 6.2% to 6.0%, matching expectations. Average hourly earnings, an indicator of wage growth, fell slightly from February, below the consensus for a modest increase. They were 4.2% higher than a year ago, down from 5.2% last month. Most of the unexpected job creation was in lower-paying sectors, causing average wages to decline.

Unanticipated strength also was seen from this week’s closely watched manufacturing data. The ISM national manufacturing index jumped to 64.7, well above the consensus forecast of 61.5, and the highest level since 1983. Readings above 50 indicate an expansion in the sector, which accounts for roughly 12% of the economy.

Given the news from the labor market and the manufacturing sector, it’s no surprise that Consumer Confidence in the U.S. has increased to the highest level since the beginning of the pandemic. This index from the Conference Board jumped from 90.4 in February to 109.7 in March, far above the consensus forecast and the best reading in a year. The rollout of the vaccine, the reopening of the economy, and the distribution of stimulus checks have helped make consumers more optimistic about future economic conditions.

Looking ahead, investors will continue watching Covid case counts and vaccine distribution. Beyond that, it will be a light week for economic data. Of note, the ISM services index will come out on Monday and the PPI inflation data on Friday.

Weekly Change
10yr Treasuryrose0.03
Dowrose100
NASDAQrose300
Calendar
Mon4/5ISM Services
Mon4/5Factory Orders
Fri4/9PPI

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Volatile Week

It was another rough week for mortgage markets, as investors attempt to determine the appropriate level of yields for the current economic environment. It looked promising Wednesday afternoon when the Fed meeting revealed no policy changes and rates dropped from their peak. However, the climb resumed the next day, and mortgage rates ended the week higher.

As expected, the Fed made no change to the federal funds rate, and its statement contained no significant surprises. Notably, the Fed did not give any indication of adjusting its current $120 billion monthly pace of bond purchases. In addition, most officials expect that the federal funds rate will remain at current levels, near zero, through 2023. However, the growth and inflation forecasts from officials were significantly higher than in December, with median GDP growth for 2021 up from 4.2% to 6.5%, which would be the strongest level in decades. Given the increased optimism about the economic outlook, investors are watching closely for signs that the Fed will begin to scale back its bond purchases.

Since consumer spending accounts for over two-thirds of all economic activity in the US, the retail sales data is a key indicator of growth. Sales were extremely volatile during the first half of 2002 due to the pandemic, but they then held relatively steady each month during the second half. Volatility has returned during the first couple of months of this year, however. After soaring an upwardly revised 7.6% in January due to the distribution of stimulus checks, retail sales unexpectedly declined 3.0% in February, restrained by severe weather in many regions.

Looking ahead, investors will continue watching Covid case counts and vaccine distribution. Beyond that, Existing Home Sales will be released on Monday and New Home Sales on Tuesday. Personal Income and the Core PCE price index, the inflation indicator favored by the Fed, will come out on Friday.

Weekly Change
10yr Treasuryrose0.10
Dowfell200
NASDAQfell100
Calendar
Wed3/22Existing Home Sales
Thu3/23New Homes Sales
Thu3/26Core PCE

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Powerful Job Gains

Mortgage rates have been on an upward path this year, and stronger than expected economic data caused the trend to continue this week. In addition, Fed officials gave no indication that they intend to attempt to halt the recent rise in yields. As a result, mortgage rates ended the week at their highest levels in months.

Long-term bond yields, including mortgage rates, have climbed roughly 50 basis points this year due to improving economic conditions. With the vaccine rollout and massive government stimulus, the outlook for economic activity looks extremely promising, which means that inflationary pressures could increase. On Thursday, Chair Powell acknowledged the strength but did not give any indication that the Fed intends to attempt to restrain long-term bond yields. According to Powell, Fed officials recognize that stronger economic activity may lead to “transitory increases in inflation,” but that the central bank will be “patient” before changing monetary policy. Some investors had hoped that Powell might indicate that policy changes were under consideration to help contain the rise in long-term yields.

In February, the economy gained a solid 379,000 jobs, which was roughly double the consensus forecast. Strength was seen in the leisure and hospitality sector, which was hit particularly hard by the pandemic. From a level of 6.3% last month, the unemployment rate unexpectedly fell to 6.2%. Average hourly earnings, an indicator of wage growth, were an impressive 5.3% higher than a year ago, matching expectations.

Two other closely watched reports released this week contained mixed results. The ISM national manufacturing index rose to 60.8, above the consensus forecast of 59.0, up from a low of 41.5 in April, and matching the highest level since 2004. By contrast, the ISM national services index declined to 55.3, well below the consensus forecast of 58.5, and the lowest level since May. Readings above 50 indicate an expansion, meaning that both sectors are growing, but at different speeds.

Looking ahead, investors will continue watching Covid case counts, vaccine distribution, and the size of the government stimulus spending bill. Beyond that, the Consumer Price Index (CPI) will come out on Wednesday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. The next European Central Bank meeting will take place on Thursday.

Weekly Change
10yr Treasuryrose0.15
Dowfell100
NASDAQfell700
Calendar
Wed3/10CPI
Thu3/11ECB Meeting
Thu3/11JOLTS

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Rising Inflation

Mortgage rates have been on an upward path this year, and the trend continued this week. With the rollout of the Covid vaccine and additional government stimulus on the way, most investors expect to see a surge in economic activity. As a result, mortgage rates ended the week at their highest levels in months.

Bond yields have gone up rapidly this year mostly due to an improving outlook for economic growth, which increases inflationary pressures. Both the government and the Fed are providing massive amounts of stimulus to boost the economy, and the vaccine rollout is expected to unleash enormous pent-up demand in hard hit areas such as travel. In addition, the Treasury must issue bonds to fund the extra government spending, and this added supply causes yields to rise.

The reduced economic activity resulting from the pandemic caused a significant decline in inflation last year, which was one of the factors responsible for record low mortgage rates. However, investors are now concerned that inflation may be heading higher. In January, the core PCE price index was 1.5% higher than a year ago, which was above the consensus forecast, and up from an annual rate of increase of 1.4% last month.

During his semi-annual testimony this week, Fed Chair Powell suggested that easy monetary policy will remain in place for a while since the economy is “a long way from our employment and inflation goals.” In particular, he noted that the economy still needs to recover 10 million jobs lost due to the pandemic. While investors are concerned about rising inflation, Powell appeared to be less worried. He said that we might see higher inflation later this year as a result of pent-up demand, but that most of the increase would be just temporary. According to Powell, Fed officials project that it could take three years for inflation to sustainably rise to their target levels.

Looking ahead, investors will continue watching Covid case counts, vaccine distribution, and the size of the government stimulus spending bill. Beyond that, the monthly Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the ISM national manufacturing index will come out on Monday and the ISM national services index on Wednesday.

Weekly Change
10yr Treasuryrose0.20
Dowfell400
NASDAQfell600
Calendar
Wed3/1ISM Manuf.
Thu3/3ISM Services
Fri3/5Employment

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Home Sales Remain Strong

It was a relatively uneventful week for mortgage markets, and rates ended a little lower, a bit above the record low levels seen late in 2020.

The spectacular rebound in the housing sector from weakness during the spring due to the partial shutdown of the economy has continued. In December, Existing Home Sales unexpectedly increased from November and were 22% higher than a year ago. Looking at the full year, 2020 saw the strongest sales pace since 2006. The median existing-home price was 13% higher than a year ago.

Inventory levels, however, were down 23% from a year ago to record lows and remained the primary obstacle to even stronger sales activity. The number of homes for sale was at just a 1.9-month supply nationally, well below the 6.0-month supply which is considered a healthy balance between buyers and sellers. Encouragingly, though, Thursday’s report on housing starts contained more optimistic news in this area. In December, single-family housing starts unexpectedly rose 12% from November and were 28% higher than a year ago. This was the eighth straight month of gains. Similarly, single-family building permits, a leading indicator of future construction, increased 8% from November and were 30% higher than a year ago.

The European Central Bank (ECB) made no policy changes at Thursday’s meeting and repeated that its massive bond purchase program will run until at least March 2022. The meeting statement said that the ECB “decided to reconfirm its very accommodative monetary policy stance.”

Looking ahead, investors will continue watching Covid case counts and vaccine distribution. The next Fed meeting will take place on Wednesday. Recent comments from officials have made it clear that rate hikes will not be seen any time soon, so investors mainly will be looking for guidance on the Fed’s inflation outlook and its bond purchase program. Beyond that, fourth quarter GDP, the broadest measure of economic activity, will be released on Thursday. The core PCE price index, the inflation indicator favored by the Fed, will come out on Friday.

Weekly Change
10yr Treasuryfell0.01
Dowrose100
NASDAQrose500
Calendar
Wed1/27Fed Meeting
Thu1/28GDP
Fri1/29Core PCE

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Housing Momentum Continues

Investors reacted this week to major economic data, Covid headlines, and negotiations in Congress for an additional aid package. Despite the wide range of news, however, it was a relatively quiet week for mortgage markets, and rates remained near record low levels.

While the solid rebound from unprecedented job losses caused by the partial shutdown of the economy has continued, the latest data released on Friday fell short of expectations. In November, the economy gained 245,000 jobs, below the consensus forecast of 450,000. Strength was seen in transportation, professional services, and health care. The economy has now recovered more than half of the 22 million jobs lost in March and April.

The other major areas of the report contained more optimistic news. From a level of 6.9% last month, the unemployment rate fell to 6.7%, matching expectations. Average hourly earnings, an indicator of wage growth, rose 0.3% from October, above the consensus for an increase of 0.1%, and were an impressive 4.4% higher than a year ago.

Another significant economic report released this week, the national manufacturing index from the Institute of Supply Management (ISM), was in line with expectations. In November, ISM came in at 57.5, the sixth straight month of readings above 50, meaning that the sector is expanding. Since many consumers are spending less money on travel and leisure activities due to the pandemic, they are buying more goods, which has boosted manufacturing activity.

Looking ahead, investors will continue watching Covid case counts, progress on vaccines, and negotiations for additional government stimulus. Beyond that, the Consumer Price Index (CPI) will come out on Thursday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. The next European Central Bank meeting also will take place on Thursday.

Weekly Change
10yr Treasuryrose0.01
Dowrose300
NASDAQrose100
Calendar
Tue1/5ISM Manufacturing
Thu1/7ISM Services
Fri1/8Employment

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Job Gains Fall Short

Investors reacted this week to major economic data, Covid headlines, and negotiations in Congress for an additional aid package. Despite the wide range of news, however, it was a relatively quiet week for mortgage markets, and rates remained near record low levels.

While the solid rebound from unprecedented job losses caused by the partial shutdown of the economy has continued, the latest data released on Friday fell short of expectations. In November, the economy gained 245,000 jobs, below the consensus forecast of 450,000. Strength was seen in transportation, professional services, and health care. The economy has now recovered more than half of the 22 million jobs lost in March and April.

The other major areas of the report contained more optimistic news. From a level of 6.9% last month, the unemployment rate fell to 6.7%, matching expectations. Average hourly earnings, an indicator of wage growth, rose 0.3% from October, above the consensus for an increase of 0.1%, and were an impressive 4.4% higher than a year ago.

Another significant economic report released this week, the national manufacturing index from the Institute of Supply Management (ISM), was in line with expectations. In November, ISM came in at 57.5, the sixth straight month of readings above 50, meaning that the sector is expanding. Since many consumers are spending less money on travel and leisure activities due to the pandemic, they are buying more goods, which has boosted manufacturing activity.

Looking ahead, investors will continue watching Covid case counts, progress on vaccines, and negotiations for additional government stimulus. Beyond that, the Consumer Price Index (CPI) will come out on Thursday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. The next European Central Bank meeting also will take place on Thursday.

Weekly Change
10yr Treasuryrose0.10
Dowrose300
NASDAQrose200
Calendar
Mon12/1JOLTS
Thu12/1CPI
Fri12/4ECB Meeting

Strong New Home Sales

The short holiday week was a relatively quiet period for mortgage rates. A large batch of economic reports on Wednesday had little impact, and rates remained near record low levels.

Sales of new homes continued at a blistering pace in October. The following weakness during the spring due to the partial shutdown of the economy, new home sales have maintained an annualized rate of around one million units for four straight months, the best levels since 2006. Builders say that they are putting up new homes as quickly as possible, but that a lack of land, labor, and materials is limiting the pace of construction.

The reduced economic activity resulting from the pandemic has caused a decline in inflation, which has helped keep mortgage rates low. In October, the core PCE price index was just 1.4% higher than a year ago, down from an annual rate of increase of 1.5% last month. Core PCE is the inflation indicator favored by Fed officials, and their stated target is 2.0%.

On Tuesday, the Federal Housing Finance Agency (FHFA) announced that the baseline conforming loan limit for Fannie Mae and Freddie Mac mortgages in 2021 will increase by 7.5% from $510,400 to $548,250. The new limit for most high-cost areas will be $822,375 or 150% of $548,250. With the continued strength in the housing market and rising home values, this will be the fifth consecutive year of increases.

Looking ahead, investors will continue watching Covid case counts, progress on vaccines, and government stimulus measures. Beyond that, the monthly Employment report will be released on December 4, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Mortgage markets will be closed on Thursday and will close early at 2:00 et on Friday for Thanksgiving.

Weekly Change
10yr Treasuryrose0.02
Dowrose600
NASDAQrose200
Calendar
Mon12/1ISM Manufacturing
Thu12/1Construction
Fri12/4Employment

Divided Government

During a week of election uncertainty, mortgage markets held relatively steady, as investors expect that control of the government will remain divided between the Democrats and the Republicans. In addition, the key labor market data came in roughly on target, and the Fed made no policy changes at Thursday’s meeting. Mortgage rates remained near record low levels.

While the final outcome of the election still remains uncertain at this time, investors expect that the Republicans will retain control of the Senate and Democrats of the House. For mortgage markets, divided government typically is viewed as positive, because it becomes more difficult to pass large new programs such as an additional stimulus package. Since funding government spending increases the supply of bonds, a lower level is more favorable for mortgage rates.

Friday’s highly anticipated monthly labor market report revealed that the solid rebound from unprecedented job losses caused by the partial shutdown of the economy has continued. In October, the economy gained a substantial 638,000 jobs, which was close to expectations. Particular strength was seen in hospitality and professional services. The economy has now recovered more than half of the 22 million jobs lost in March and April.

The big surprise was the shocking drop in the unemployment rate. From a level of 7.9% last month, it plunged to 6.9%, which was far below the consensus forecast of 7.7%. The data on job gains comes from actual figures provided by large companies, while the unemployment rate is based on a household survey conducted by the Labor Department. Although these two measures show similar results in the long run, it is common for them to display different levels of strength from month to month.

Thursday’s Fed meeting produced no surprises and had no impact on mortgage rates. As widely expected, Fed officials refrained from making any changes during the election uncertainty with financial markets performing smoothly. In fact, the statement released after the meeting was nearly identical to the prior one.

Looking ahead, investors will continue watching election results, covid case counts, and progress on vaccines. It will be a light week for economic data. The JOLTS report, which measures job openings and labor turnover rates, will be released on Tuesday. The Consumer Price Index (CPI) will come out on Thursday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. Mortgage markets will be closed on Wednesday in observance of Veterans Day.

Weekly Change
10yr Treasuryfell0.05
Dowrose1,800
NASDAQfell900
Calendar
Mon11/10JOLTS
Thu11/12CPI
Fri11/12Jobless Claims

Housing Sector Shines

Increased expectations for additional government stimulus were modestly negative for mortgage markets this week, while strong housing data had little impact. Rates ended a little higher but remained near record low levels.

The spectacular rebound in the housing sector from weakness during the spring due to the partial shutdown of the economy has continued. In September, Existing Home Sales increased 9% from August and were 21% higher than a year ago, at the best level since May 2006. The median existing-home price was 15% higher than a year ago.

Inventory levels were down 19% from a year ago and remained the primary obstacle to even stronger sales activity. The number of homes for sale was at just a 2.7-month supply nationally, well below the 6.0-month supply which is considered a healthy balance between buyers and sellers. However, Tuesday’s report on housing starts contained encouraging news in this area. In September, single-family housing starts rose 9% from August and were 22% higher than a year ago. Similarly, single-family building permits, a leading indicator of future construction, were 24% higher than a year ago.

Lawmakers continue to negotiate an additional government aid package, and most investors expect a deal either before or shortly after the election. Increased fiscal stimulus would be unfavorable for mortgage rates for two primary reasons. First, government spending boosts economic activity, which raises the outlook for future inflation. In addition, the supply of bonds increases to fund the spending, so yields must rise to entice investors to purchase more bonds.

Investors will remain focused on medical advances to fight the coronavirus and negotiations for additional government stimulus measures. Beyond that, New Home Sales will be released on Monday. Third quarter gross domestic product (GDP), the broadest measure of economic activity, will come out on Thursday. The core PCE price index, the inflation indicator favored by the Fed, will be released on Friday.

Weekly Change
10yr Treasuryrose0.10
Dowfell300
NASDAQfell200
Calendar
Mon10/26New Home Sales
Thu10/29GDP
Fri10/30Core PCE

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)