Overview: A large batch of major economic data released over the past week was a bit stronger than expected overall. As a result, mortgage rates ended a little higher, rising from the bottom of their recent range.
Friday’s key Employment Report contained mixed news. The economy added 187,000 jobs in August, a little above the consensus forecast, but the results for prior months were revised considerably lower. Health care, leisure, and hospitality showed the strongest gains. Average hourly earnings were 4.3% higher than a year ago, slightly below the consensus forecast and down from an annual rate of increase of 4.4% last month. Federal Reserve officials carefully watch wage growth because it generally raises future inflationary pressures.
The unemployment rate unexpectedly jumped from 3.5% to 3.8%, the highest level since February 2022. However, the increase was completely due to an enormous number of new workers entering the labor force rather than people losing their jobs. The unemployment rate measures the percentage of the labor force without jobs. If more people are seeking work, the rate rises even if the number of employed individuals remains the same.
The Personal Consumption Expenditures (PCE) Price Index is the inflation indicator favored by the Fed. In July, Core PCE, which excludes food and energy to reduce volatility, was up 4.2% from a year ago, matching expectations. While it has come down from its peak in September of 5.2%, the annual rate of increase in Core PCE remains far above the Fed's target level of 2%.
Two other significant economic reports released this week from the Institute of Supply Management (ISM) revealed divergent results. The ISM Services Index jumped to 54.5, well above the consensus forecast of 52.5 and the highest level since February. By contrast, the ISM Manufacturing Index was just 47.6, up slightly from the lowest level since May 2020. Since readings above 50 indicate an expansion in the sector and below 50 a contraction, this data continues to highlight the preference of consumers for services over goods in recent months.
Job Gains (thousands)
September 13 — Consumer Price Index (CPI)
September 14 — Retail Sales report