The Bureau of Labor Statistics (BLS) released their estimate of new job creations for the month of August. It was reported that employers added 173,000 new payrolls, which fell short of the 220,000 anticipated by the market. However, the prior two month’s reports were revised higher by a combined 44,000 new payrolls. The closely watched Unemployment Rate actually dropped .2% from 5.3% down to 5.1%. However, this is highly attributed to a sharp reduction in The Labor Force Participation Rate, which dropped by 41,000 and is partially due to students quitting their seasonal jobs to go back to school. When you consider the upward revisions to the job growth figures along with the reduction to the Unemployment Rate, this report was a strong reading and a sign that our job market continues to grow at a healthy pace. This report will be highly considered by the Fed as they decide whether to push rates higher in when they meet later this month.
Within the report were some concerning components that could point to higher interest rates ahead. It was reported that Average Hourly Earnings increased by .3%. This gives us a hint of wage pressure inflation. Historically, a move higher in this number is a strong precursor to pending consumer inflation ahead, which is the arch enemy of the bond market and the primary driver of mortgage interest rates. Further, Average Hours Worked increased to the highest number since 2009 at 34.6 hours. Since these are both inflationary numbers, they will be weighed into the Fed’s decision as to whether or not to raise interest rates when they meet on the 17th of this month. If the Fed fails to raise rates, we can anticipate mortgage rates moving higher. The bond market will in essence do the work of the Fed by pushing longer term rates up if the Fed doesn’t make the move.
Mortgage bonds remain trapped in a narrowing range. The stock market is down sharply again today. This is helping hold mortgage bonds from falling. We are hoping that bonds can hold their position without breaking beneath support today. However, since we see little hope of breaking above resistance at the 200 d