Strong Job Gains

A wide range of major U.S. economic data was released over the past week covering the labor market, manufacturing, services, and housing. Overall, the data suggested that U.S. economic growth and inflation were a little stronger than expected. As a result, mortgage rates ended the week higher. 

Average hourly earnings, an indicator of wage growth, declined slightly from January, well below the consensus for a modest increase. After a concerning rise in wages in January, the decline in February was good news for mortgage rates and partially offset the negative effect of the strong job gains.

The February ISM national manufacturing survey released on Tuesday indicated that things may be turning a little more positive for this sector. The survey rose to the best level in five months. For mortgage rates, one component of the survey was concerning. The prices paid component measures the change in the prices that manufacturers charge. In February, the survey on prices paid revealed a much higher reading than was expected, hinting at rising inflation. This follows significant increases in the recent broad-based monthly inflation measures. Mortgage rates are highly influenced by the outlook for future inflation. As inflation expectations rise, so do mortgage rates. 

Looking ahead, the biggest event next week will be the European Central Bank (ECB) meeting on Thursday. It is expected that the ECB will announce additional stimulus measures, which could include an expansion of its bond purchase program. Very little U.S. economic data will be released next week. Import Prices will come out on Friday. There will be Treasury auctions on Tuesday, Wednesday, and Thursday.

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