Mortgage rates hold steady despite strong August jobs report
A stronger-than-expected August jobs report failed to push mortgage rates higher, as bond markets had already priced in much of the economic data.
Mortgage rates showed little movement following a strong August employment report that surpassed expectations. The U.S. Economy added 162,000 jobs last month, and the unemployment rate held steady at 4.1%, according to data from the U.S. Bureau of Labor Statistics reported by HousingWire.
Despite the positive jobs data, the yield on the 10-year Treasury note, a key influencer of mortgage rates, barely budged. Analysts suggest that a significant amount of economic information is already reflected in bond market prices, making it increasingly difficult to push yields and associated borrowing costs substantially higher. This week has seen several dramatic economic events, yet yields have remained relatively stable even amid raise oil prices.
Breaking down the jobs data
The August report is considered one of the stronger showings in recent years. It featured growth in the labor force, job creation that beat estimates, broad-based gains across sectors, and positive revisions to previous months' data. Employment increased in food services, drinking places, and local government education, while the information industry lost jobs.
The three-month average for job creation now stands at 82,000, which is above a key analyst's break-even level of 78,000. This level is significant as it indicates how many jobs need to be created to maintain a low unemployment rate. The six-month average is even higher at 106,500. According to the analysis, this suggests the labor market is returning to a trend of normal growth after past disruptions.
One notable soft spot was wage growth, which is currently at cycle lows. The report states that wage growth at 3.1% is seen as a victory for the Federal Reserve in its inflation fight.
The Federal Reserve's focus
With the labor market appearing stable, the Federal Reserve's attention is expected to shift squarely to inflation data. Inflation week is scheduled for the following week, and the likelihood of a September interest rate hike increased slightly after the jobs report was released.
The Fed believes lower wage growth assists in combating inflation. The theory is that if wage growth stays under 3%, Americans have less capacity for spending, which reduces pricing power for businesses. With headline inflation above 3%, real wages are currently negative.
For a long time, one analyst has believed that targeting sub-3% wage growth, coupled with productivity running at 1%, creates a pathway to the Fed's 2% inflation goal. This condition would need to persist for 12 to 18 months to achieve the desired results.
Sector-specific resilience
Key economic indicators are showing resilience despite higher interest rates. One specific cycle indicator for a recession-the number of residential construction jobs-has not yet broken lower. The sector is described as "not looking great" but remains intact.
Spending on artificial intelligence data centers has boosted employment data for general construction workers during this economic cycle. Additionally, the home remodeling business has held up reasonably well, contributing to the stability in construction employment figures.
The report also notes that temporary distortions, such as the impact of the World Cup on leisure and hospitality job data, have now faded from the statistics. The labor market is described as being back to normal in that sector.
If the labor force had not grown slightly, the unemployment rate for August would have been 4.0% instead of 4.1%. The analysis concludes that, with the three-month average at 82,000 jobs per month, the labor market is in a balanced position-neither so weak as to cause alarm at 20,000 jobs nor so strong as to significantly beat estimates.
