This morning’s Job Report released by the Bureau of Labor Statistics (BLS) showed that employment gains were 31,000 stronger than the 178,000 anticipated. Although the 209,000 reported was below June’s report of 231,000, it was still a respectable figure. With the summer months, generally being strong months for the job market, it seems strange that estimates were as low as they were. Once we move into the colder months of winter, we will see the number of new hires fall as seasonal and student jobs drop off.
The Unemployment Rate, which is heavily influenced by the number of Americans entering and leaving the labor force, fell as expected from 4.4% down to 4.3%. Since this improvement was anticipated, the reaction in the bond market was muted.
The good news for the BLS report for mortgage rates was that Average Hourly Earnings only increased by 0.3% in the month of July, which held the annualized rate steady at 2.5%. Therefore, we are still not seeing hints of wage pressured inflation. Since many of the new hires are from the service sector, there isn’t a lot of movement to the average wage paid. Many service level jobs are seasonal, staffed by students and are often on the lower end of the pay scale. If wage growth remains muted, it will be difficult for inflation to climb much higher.
With the Job report behind us, we can now see where rates stabilize in the near term. With bonds remaining above their major moving averages, we will continue to suggest a floating bias. However, do so only if you are able to closely monitor the markets. If bond prices continue to fall, we will shift to a locking stance.