Market Perspective

A Mixed Employment Picture


Overview: Over the past week, news about the pandemic, government stimulus proposals, the labor market, and inflation caused some daily volatility for mortgage markets. The net effect of these influences was minor, however, and rates ended the week with little change.

Friday’s key labor market report contained mixed news, but it is clear that the pandemic has slowed the pace of hiring in recent months. In January, the economy gained 49,000 jobs, which was very close to expectations. However, revisions subtracted 159,000 jobs from the results for prior months. The unemployment rate unexpectedly plunged to 6.3%, below the consensus forecast of 6.7%. A significant portion of the decline was due to the departure of 406,000 workers from the labor force, though, which is a sign of weakness. Average hourly earnings, an indicator of wage growth, were 5.4% higher than a year ago, which was well above the consensus forecast.


The diminished economic activity resulting from the pandemic has caused inflation to fall, which is one of the factors responsible for the decline of mortgage rates to record-low levels. While investors are concerned that inflation may rise later in the year, current readings show no signs of this happening. The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services. In January, core CPI was just 1.4% higher than a year ago, which was lower than expected and down from an annual rate of increase of 1.6% last month.

Lawmakers continue to negotiate the details of additional coronavirus relief measures. President Biden proposed a $1.9 trillion package, and investor expectations for the final figures vary widely. Increased government spending is negative for mortgage rates, since Treasury bonds must be issued to fund it, which causes yields to rise.


Week Ahead

Investors will continue watching COVID case counts, vaccine distribution, and negotiations on the size of additional government relief measures. In addition, the Retail Sales report will be released on February 17. Since consumer spending accounts for over two-thirds of all economic activity in the U.S., the retail sales data is a key indicator of growth. Mortgage markets will be closed on Monday for Presidents’ Day.

Monthly Job Gains (millions)


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