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A positive outlook for the US economy caused investors to shift assets from bonds to stocks this week. The economic data was highlighted by Friday's strong labor market report. Mortgage rates ended the week higher.
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Investors were shocked by the strength of Friday's Employment data. The economy added 257K jobs in January, which exceeded expectations. The bigger news was that upward revisions to prior months added another 147K jobs. Monthly job gains over 200K are considered strong, and the economy has added an average of 336K jobs over the past three months. Stronger growth increases expectations for future inflation, which is negative for mortgage rates, and mortgage rates rose after the announcement.
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Another component of the Employment report caused inflation expectations to increase as well. Average Hourly Earnings, an indicator of wage growth, was 2.2% higher than one year ago, which was much higher than expected. Some of the increase in wages was due to higher minimum wage laws which went into effect in January in several states, so this portion of the wage growth will not be repeated in future months.
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The Unemployment Rate unexpectedly rose from 5.6% to 5.7%, but this was due to a large increase in the size of the labor force. The Unemployment Rate measures the percentage of people who are actively looking for work (the labor force) but cannot find a job. Many people who had not previously been searching began to look in January. This is a sign of an improving labor market.
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The most significant economic report next week will be Retail Sales on Thursday. Retail Sales account for about 70% of economic activity. The JOLTS report, measuring job openings and labor turnover rates, will come out on Tuesday. Import Prices and Consumer Sentiment will round out a light week for economic data. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.
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All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
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All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
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