Over the past week, the major economic data and comments from an important Fed official were viewed as negative for mortgage rates. This was partially offset by Friday’s report of possible plans for a long-range missile test by North Korea. As a result, mortgage rates ended the week slightly higher.
Much of the data in Friday’s key Employment report was affected by the recent hurricanes. While the consensus forecast called for gains of 100,000, the economy lost 33,000 jobs in September. Job losses were seen mainly in the areas most affected by the hurricanes such as the restaurant industry. By contrast, wage growth rose far more than expected. Average wages were 2.9% higher than a year ago, up from an upwardly revised annual rate of 2.7% last month. This was the highest reading since December 2016. The wage figures likely received a boost from the hurricanes, since many of the lost jobs were lower paying ones.
According to the Labor Department, the survey data used to calculate the unemployment rate was not affected by the hurricanes. The unemployment rate in September unexpectedly declined to 4.2% from 4.4% in August. This was the lowest level since February 2001. Investors reacted to the unemployment rate and wage data by pushing mortgage rates higher.
On Thursday, comments from Federal Reserve Bank of San Francisco President John Williams were more hawkish than expected. Williams thinks that the decline in inflation in recent months has been mostly due to factors which have just a “temporary effect.” He believes that it will be appropriate to continue to raise the federal funds rate even if inflation remains low. His surprisingly strong support for tighter monetary policy caused mortgage rates to move a little higher.
Looking ahead, Friday will be the big day for economic data with Retail Sales and CPI. Consumer spending accounts for about 70% of economic activity in the U.S., and the retail sales data is a key indicator. The Consumer Price Index (CPI) is a widely followed monthly inflation report. Before that, the minutes from the September 20 Fed meeting will come out on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials and have the potential to significantly move markets. Mortgage markets will be closed on Monday in observance of Columbus Day.
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