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Shockingly Strong Job Gains

Overview: Over the past week, the positive momentum for mortgage rates following the January 30 Federal Reserve meeting continued a little longer before it was reversed by Friday’s stronger than expected labor market data. The effects of the two events roughly offset each other, and mortgage rates ended the week nearly unchanged.


The headline figure for last Friday's monthly Employment Report initially shocked investors, showing job gains above 300,000 for a second consecutive month. However, the rest of the report contained much weaker results, particularly in the key area of wage growth, and investors viewed the data overall as just a little stronger than expected. Since faster growth raises the outlook for future inflation, the report was negative for mortgage rates, sending them higher.

In January, the economy added a whopping 304,000 jobs, which was far more than the consensus forecast of 160,000. However, downward revisions subtracted 70,000 jobs from the results for prior months. The unemployment rate unexpectedly increased from 3.9% to 4.0%, but this was mainly due to the effects of the government shutdown. Average hourly earnings, an indicator of wage growth, fell short of expectations with just a slight increase from December. They were 3.2% higher than a year ago, however, holding steady near the same annual rate seen over the last several months.

Beyond the employment data, the only significant economic report released over the past week was the Institute for Supply Management (ISM) Services Index. The index fell to 56.7, which was close to the consensus of 57.0, and it caused little reaction. Readings above 50 indicate an expansion in the sector.

Week Ahead

Looking ahead, the Job Openings and Labor Turnover Survey (JOLTS) report will be released on February 12. Fed officials value this data to help round out their view of the strength of the labor market. The Consumer Price Index (CPI) will come out on February 13. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. The Retail Sales report is scheduled to be released on February 15. 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 government shutdown, which began on December 22 and ended on January 25, may continue to cause some release dates to be delayed.

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