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Fluctuating Data Continues

Overview: Investors are deeply divided right now about the outlook for economic growth. Some think that the surprising strength displayed in recent data will continue, while others view it as simply a matter of time before the Federal Reserve’s massive monetary policy tightening slams the brakes on the economy. This split resulted in a lot of volatility over the past week, but mortgage rates ended with little change.


The highly anticipated labor market data released on Friday contained mixed news. Job growth again was well below its recent rapid pace, but the unemployment rate is still extremely low and wage growth remains elevated. The economy added just 187,000 jobs in July, below the consensus forecast of 200,000, and negative revisions reduced the results for prior months. This was the second month in a row with gains below 200,000 — the two smallest monthly increases since December 2020.

Although job growth fell a bit short of the forecasted levels, the other major components of the report were a little stronger. The unemployment rate unexpectedly declined from 3.6% to 3.5%. Average hourly earnings, an indicator of wage growth, increased 0.4% from June, slightly above the consensus forecast of 0.3%. Earnings were 4.4% higher than a year ago, the same annual rate of increase as last month. Wage growth is in the spotlight now because it generally raises future inflationary pressures. Investors are split about whether the Fed will increase the federal funds rate by another 25 basis points later this year.

Another significant economic report released this week, from the Institute of Supply Management (ISM), highlighted the continued consumer appetite for services since the economy reopened after the pandemic. The ISM Services Index came in at a solid 52.7, which was close to expectations. Readings above 50 indicate an expansion in the sector.


Job Gains (thousands)

Week Ahead

August 10 — Consumer Price Index (CPI)

August 15 — Retail Sales report

August 16 — New Residential Construction report (also known as Housing Starts)


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