According to the Bureau of Labor Statistics (BLS), the US economy added more jobs than anticipated in the month of June. The report showed that there were 213,000 new job creations, while the market was anticipating around 190,000. However, the more important news is that the unemployment rate move up from 3.8% to 4.0%. This unexpected move was a result of more Americans entering the workforce. The Labor Participation rate moved up from 62.7% to 62.9%. Since this rate has remained stubbornly low, this is overall good news for the US economy. However, the Fed won’t like seeing the unemployment rate move higher.
Another significant component of the report is the Average Hourly Earnings estimate. Since employee wage increases generally are a pre-curser to higher consumer inflation, the bond market pays particular attention to this component of the report. On a month over month basis, the market was anticipating a growth rate of 0.3%. However, the actual report came in at just 0.2%. Although this is still a reasonable rate of wage growth, the fact that it came in lower than expected is good news for mortgage interest rates.
Bond prices have just barely cleared above their 100 day moving average. Since a decisive break above this level has not occurred since September of last year, this could be a short lived experience. Unless bonds are able to decisively break above this level, we will maintain our locking bias.