Economic Commentary for September 10th, 2014: Jobs Data Mixed

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There was mixed news for mortgage rates over the past week. The favorable news included a shortfall in the August jobs report and new stimulus measures from the European Central Bank (ECB). This was outweighed, however, by other indications of improving economic growth and by growing sentiment that the Fed will raise the fed funds rate sooner than previously expected. As a result, mortgage rates ended the week higher.

While the consensus was for a seventh straight month of job gains above 200K, the economy added just 142K jobs in August, the lowest monthly increase since December 2013. The impact of the Employment Report was limited, since other recent economic data suggests that job gains will pick up again in coming months. The JOLTS Report, a favorite of Fed Chair Yellen, showed that job openings remained near 13-year highs. Jobless Claims have been holding at the lowest levels since prior to the financial crisis.

A report from the San Francisco Fed had the greatest influence on mortgage rates this week. The report called attention to the fact that the forecasts made by Fed officials called for a faster pace of fed funds rate hikes during 2015 than the pace expected by investors. Concerned that they may be underestimating the speed of rate hikes, investors sold bonds, including mortgage-backed securities (MBS), pushing mortgage rates higher.

On Thursday, the ECB unexpectedly cut rates and announced a highly anticipated new asset purchase program to help boost economic growth in the region. Since ECB officials have been talking about the asset purchase program for many weeks, investors had pushed global bond yields lower well in advance of Thursday’s meeting, and there was little reaction in U.S. mortgage rates following the announcement.

Looking forward, attention now is on the Fed meeting on September 17. Investors will be watching for a change in the Fed’s statement which would allow more flexibility in the timing for a fed funds rate hike. The next big economic report will be Friday’s release of Retail Sales, which account for roughly 70% of economic activity. After that, the monthly inflation reports, CPI and PPI, will come out. Investors will continue to watch the conflicts in Ukraine and other regions as well.

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