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Strong Wage Growth

Overview: Two of the biggest economic reports of the month were released over the past week. While most of this labor market and inflation data was very close to the expected levels, wage growth posted surprisingly strong gains. As a result, mortgage rates ended the week a bit higher.


The latest monthly Employment Report revealed stronger than expected wage growth and moderate job gains. In April, average hourly earnings, an indicator of wage growth, increased 0.5% from March, well above the consensus forecast. They were 4.4% higher than a year ago, up from an annual rate of 4.2% last month. The economy added 253,000 jobs in April, above the consensus forecast, but downward revisions reduced the results for prior months. The largest gains were in professional services, health care, hospitality, and leisure. The unemployment rate unexpectedly dropped from 3.5% to 3.4%, matching the lowest level since 1969.

The highly anticipated Consumer Price Index (CPI) inflation data came in very close to expectations. Core CPI is a closely watched inflation indicator that excludes the volatile food and energy components to provide a clearer picture of the underlying trend. Core CPI in April was 5.5% higher than a year ago, down from an annual rate of increase of 5.6% last month.

Although the annual rate of increase in core CPI has fallen from a peak of 6.6% in September, it remains far above the readings around 2% seen early in 2021, which is the stated target level of the Federal Reserve. Similarly, Fed officials would like to see wage growth, which raises future inflationary pressures, drop to an annual rate of increase below 3%. To help achieve these goals, the Fed has raised the federal funds rate very aggressively, and officials have said that rates should remain at elevated levels for a while to fight inflation. Investors now anticipate that there will be no additional rate hikes, but opinions vary widely on when the Fed will begin to lower the federal funds rate.


Job Gains (thousands)

Week Ahead

May 16 — Retail Sales report

May 17 — New Residential Construction report (also known as Housing Starts)

May 18 — Existing-Home Sales report


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