Overview: For the second straight week, stronger than expected data was negative for mortgage rates, and there was no significant market-moving news from other sources. As a result, rates ended the week higher.
In Friday's important Employment Report, investors focused on stronger than expected wage growth. In August, average hourly earnings were 2.9% higher than a year ago, up from an annual rate of increase of 2.8% last month and at the highest level since April 2009. Since stronger wage gains raise the outlook for future inflation, the news caused mortgage rates to rise.
Beyond the wage data, the other components of the report came in pretty close to the expected levels. The economy added 201,000 jobs in August, above the consensus of 190,000, but downward revisions subtracted 50,000 jobs from the results for prior months. Job growth has averaged 207,000 per month so far this year, above the pace of 189,000 seen last year over the same period. The unemployment rate was flat at 3.9%, matching expectations.
Another closely watched major economic report released over the past week also showed strong results. The Services Index from the Institute of Supply Management (ISM) jumped to 58.5, which was well above the consensus, and readings over 50 indicate an expansion. Mortgage rates moved higher following this strong data.
Looking ahead, the next European Central Bank meeting will take place on Thursday. No change in policy is expected, but any surprises could influence mortgage rates. In the U.S., 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. In addition, the Retail Sales Report will be released on Friday. Since consumer spending accounts for about 70% of all economic activity in the U.S., the retail sales data is a key indicator of growth. The New Residential Construction report (also known as Housing Starts) will come out on September 19.