Although this week’s economic events didn’t appear to support it, there was a decline in mortgage rates. To understand why, it is necessary to consider their movement over a longer time frame. In short, rates are nearly unchanged from their levels at the start of October. While the economic data, comments from the Fed, and trade news continued to influence rates this week, the bottom line is that the overall economic outlook of investors remains nearly the same as a month ago.
Against a consensus forecast of 90,000, the economy gained 128,000 jobs in October. In addition, upward revisions added 95,000 jobs to the results for prior months. A temporary strike by auto workers held back the level of job gains in October by about 40,000, but this will boost the November figures. Matching expectations, wages were 3.0% higher than a year ago, up from an annual rate of increase of 2.9% last month.
Because it captures the broadest measure of economic growth, the report on Gross Domestic Product (GDP) is released just four times a year. During the third quarter of 2019, GDP grew at a faster than expected pace of 1.9%, close to the reading of 2.0% for the second quarter. Strength was seen in consumer spending and housing, while business investment remained weak.
There were no significant surprises from Wednesday’s Fed meeting. The widely anticipated 25 basis point reduction in the federal funds rate took place, and the comments from the Fed were in line with expectations. According to Fed Chair Powell, current monetary policy is “likely to remain appropriate” as long as the performance of the economy remains “broadly consistent.” The prevailing view now among investors is that Fed officials are not inclined to lower rates again unless changing economic conditions cause a need.
Looking ahead, it will be a much lighter week for economic news. Tuesday will be the biggest day for economic data with the ISM national services index and the JOLTS report. 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. Treasury auctions on Wednesday and Thursday also could affect mortgage rates. In addition, news about the impeachment inquiry or the trade negotiations with China could have an influence.
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