Overview: Market-moving economic news was scarce over the past week. Even Friday’s key monthly Employment Report had just a minor net effect. Mortgage rates ended a little lower.
Overall, the Employment Report was bond-friendly, but it produced little net impact on mortgage rates. The muted reaction likely was due to uncertainty about the effect of the hurricanes on the data. The big surprise in the report was the weakness in wage growth. While the consensus was for an annual wage growth rate of 2.7% in October, it was just 2.4% higher than a year ago, down from a revised annual rate of 2.8% in September. If this lower level of wage growth continues, it would reduce future inflationary pressures, which would be good for mortgage rates. As for job gains, the economy added 261,000 jobs in October, following depressed hurricane-related results in September. Combined with upward revisions of 90,000 jobs to the figures for prior months, the total gains were close to the expected levels.
The composition of the Fed will be altered significantly next year, as the three most powerful officials will change. On Thursday, President Trump selected Jerome Powell as his nominee to serve as the next Fed chair beginning in February. Former Fed Vice Chair Stanley Fischer resigned as of mid-October, but Trump has not yet announced a candidate to replace him. Finally, New York Federal Reserve Bank President William Dudley said on Monday that he will retire in the spring or summer of 2018 when his replacement is found. His replacement will be selected by the New York Fed's board of directors. As Fed chair, Powell is expected to maintain a course for monetary policy similar to the current one. Some uncertainty will remain, however, until the other positions are filled.
Looking ahead, the Retail Sales report and the Consumer Price Index (CPI) will be released on November 15. Consumer spending accounts for about 70% of economic activity in the U.S., and the retail sales data is a key indicator. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. In addition, changes in tax reform proposals could influence mortgage rates.