Strong Job Gains

It was another good week for mortgage markets. Bonds rallied after the election, oil prices fell, and investors continued shifting money out of riskier technology stocks and into safer investments like bonds. Stronger than expected labor market data had surprisingly little impact. All of this helped give mortgage rates a little downward push.

Long-term bond yields, including mortgage rates, moved lower after the midterm election for several reasons. First, investors are feeling more optimistic about the possibility of a resolution to the conflict in the Middle East. That optimism helped bring oil prices down, easing some concerns about future inflation. When investors expect inflation to cool, they don't need as much return on their investments to protect their purchasing power. This can help bring bond yields down. 

Government spending is another piece of the puzzle. The government is running large deficits and issuing more debt to cover its spending. However, the election results are expected to make it harder to pass legislation that would increase government spending. If fewer bonds are being issued, there is less competition for investor dollars, which can help keep yields lower. 

Artificial intelligence is also playing a role. Technology companies have been pouring money into AI infrastructure, including data centers, and that requires significant funding. To attract investors, these companies have been offering higher returns on their corporate bonds. Following the election, however, there may be more resistance to new data centers and other AI-related projects, potentially slowing some of that spending. Put simply, investors may see less competition for their money from government and corporate borrowers, helping create a more favorable environment for bonds and mortgage rates.

In addition to the strong headline number, the other major components of the report also exceeded expectations. Average hourly earnings rose 0.4% for the month, bringing annual wage growth to 3.1%, up from 3.0% the month before. The unemployment rate declined to 4.1%, while the participation rate (the percentage of working-age people in the labor force) improved. After hitting its lowest level since March 2021 in July, participation has picked up as significantly more people have entered the workforce. There was one area worth watching, though, as the average length of unemployment increased to 27 weeks, its highest level since 2021. This suggests that while employers are still adding jobs, people who are out of work may be finding it more difficult to locate their next opportunity.

Bottom Line: For now, mortgage markets are weighing several competing factors: a slowing economy, inflation that remains stubbornly above the Fed's target, and ongoing uncertainty around the world. While inflation has cooled considerably from its peak, it hasn't come down far enough for the Federal Reserve to declare victory. That means the Fed will likely continue taking a cautious approach before making its next move. For mortgage rates, this could mean a bit of a bumpy ride in the weeks ahead. We'll continue watching incoming economic reports, comments from the Federal Reserve, and global developments for clues about where rates may be headed. 

Looking ahead, the conflict in the Middle East and oil prices will remain a major focus. For economic reports, the Consumer Price Index (CPI), a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services, will be released on Tuesday. Existing Home Sales will come out on Thursday. The Producer Price Index (PPI) will be released on Friday. Mortgage markets will be closed on Wednesday for Veterans Day.