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Labor Market Excels


Overview: Over the past week, the events in the Middle East far outweighed the economic news. As a result, mortgage rates ended the week lower.

 

In response to geopolitical news such as the conflicts in the Middle East and Ukraine, investors generally seek to reduce the level of risk in their portfolios. This week, the events in the Middle East caused investors to shift to relatively safer assets, such as bonds. This increased demand for mortgage-backed securities (MBS), which was favorable for mortgage rates.

Largely overshadowed was that the economy added an enormous 363,000 jobs in September, far above the consensus forecast of 160,000, and the results for prior months were revised higher. The greatest gains were seen in health care, government, leisure, and hospitality. The other major elements of the report were more favorable for mortgage markets. The unemployment rate remained at 3.8%, above the consensus for a small decline. In addition, the pace of wage growth continued to slow. Average hourly earnings were 4.2% higher than a year ago, down from an annual rate of increase of 4.3% last month and the lowest level since June 2021. Federal Reserve officials carefully monitor wage growth because it raises future inflationary pressures.


The September 20 Fed meeting minutes released on Wednesday contained no significant surprises. Investors are trying to figure out whether there will be another increase in the federal funds rate later this year, but officials remained divided and offered no additional guidance. Instead, they again emphasized that future decisions will be based on incoming economic data and suggested that they will “proceed carefully” in determining whether further tightening is necessary. Of note, there have been significant developments since the meeting three weeks ago which could influence future policy, including a large increase in bond yields and the conflict in the Middle East.


 

Job Gains (thousands)




 
Week Ahead

October 12 — Consumer Price Index (CPI)

October 17 — Retail Sales report

October 18 — New Residential Construction report (also known as Housing Starts)

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