Strong Wage Gains and Lower Mortgage Rates

With the exception of the wage growth seen in Friday’s key employment report, the bulk of the economic data released over the past week fell short of expectations. This was good news for mortgage rates, and they ended the week a little lower.

Against a consensus forecast of 190,000, the economy added 151,000 jobs in January. This was down from unusually large average gains of about 280,000 each month over the prior three months. Economists estimate that the U.S. economy needs to produce 100,000 to 125,000 jobs per month to absorb new entrants into the labor force and to stabilize unemployment. The unemployment rate declined in January from 5% to 4.9%, which was the lowest level since February 2008. The slower pace of job creation in January was consistent with the weaker readings seen in many recent economic reports.

For mortgage rates, surprisingly strong wage growth was a greater factor than the shortfall in job gains. Average hourly earnings, an indicator of wage growth, rose 0.5% in January. The consensus forecast was for an increase of just 0.3%. Average hourly earnings were 2.5% higher than a year ago. This pace of wage growth has been on an upward path in recent months. The strong wage gains caused investors to raise their outlook for future inflation, which was negative news for mortgage rates. The result was that mortgage rates moved a little higher following Friday’s report, offsetting some of the improvement seen earlier in the week.

Source: MBS Quoteline

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