The major labor market data released this week was significantly stronger than expected. As a result, mortgage rates continued to rise, reaching levels not seen in over two decades.
In September, the economy added a massive 363,000 jobs, far above the consensus forecast of 160,000, and the results for prior months were revised considerably higher. Service-related industries contributed 234,000 jobs compared to just 29,000 for manufacturing businesses. The largest gains were seen in health care, government, leisure, and hospitality.
On a more positive note for mortgage markets, wage growth continued to moderate. Average hourly earnings increased 0.2% from August, slightly below the consensus forecast. Earnings were 4.2% higher than a year ago, down from an annual rate of increase of 4.3% last month and the lowest level since June 2021. Fed officials keep a close eye on wage growth because it generally raises future inflationary pressures.
The JOLTS (job openings and labor turnover rates) report suggested tighter conditions in the labor market as well. At the end of August, there were 9.6 million job openings, far above the consensus forecast of 8.8 million and the highest level in about two years. Since a higher number of openings means that companies may need to raise wages in order to hire enough workers, this stronger than expected data was unfavorable news for mortgage rates.
Two other significant economic reports released this week from the Institute of Supply Management revealed very different results. The ISM national services sector index came in at a solid reading of 53.6. By contrast, the ISM national manufacturing index was just 49, still close to the lowest level since May 2020. Since readings above 50 indicate an expansion in the sector and below 50 a contraction, this data continues to highlight the consumer preference for services over goods in recent months.
Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy. For economic reports, by far the biggest will be the Consumer Price Index (CPI) on Thursday. CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services. Beyond that, Import Prices will be released on Friday. Mortgage markets will be closed on Monday for Columbus Day.
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