October 2018 Edition – Strong Data

Since it raises the outlook for future inflation, the stronger than expected economic data released this week was bad news for mortgage rates, and rates reached their highest levels in many years.

The biggest surprise in the data released this week came from Wednesday’s report on the services sector of the economy. The ISM national services index surged to 61.8, well above the consensus, and the highest level ever recorded since they began to track the data in 2008. Readings above 50 indicate that the sector is expanding. In their biggest move of the week, mortgage rates rose sharply following this news.

Friday’s highly anticipated Employment report revealed that solid improvement in the labor market continued. Against a consensus forecast of 180,000, the economy gained just 134,000 jobs in September. However, upward revisions added 87,000 jobs to the results for prior months, bringing the total gains above the expected levels.

Because job gains are volatile month to month, investors also look at longer-term trends, and the economy has added an average of 211,000 workers per month so far in 2018, above even the strong pace of 182,000 seen over the same period last year.

In addition, the unemployment rate unexpectedly declined from 3.9% to 3.7%, the lowest level since 1969. Average hourly earnings, an indicator of wage growth, were 2.8% higher than a year ago, the same annual rate of increase as last month.

Looking ahead, 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 JOLTS report also will be released on Thursday. JOLTS measures job openings and labor turnover rates, and Fed officials value this data to help round out their view of the strength of the labor market. In addition, Treasury auctions on Wednesday and Thursday could influence mortgage rates. Mortgage markets will be closed on Monday in observance of Columbus Day.

Weekly Change
Mortgage rates rose 0.15
Dow rose 100
NASDAQ fell 200
Wed 10/10 PPI
Thu 10/11 CPI
Thu 10/11 JOLTS