|Wage Growth Slows
Over the past week, two major economic reports contained mixed news and had offsetting effects on mortgage rates. Investors viewed Wednesday’s Fed meeting as favorable for bonds, however, and mortgage rates ended the week lower.
The January ISM national manufacturing index was released on Wednesday. The index rose to 56, which was the highest level since November 2014. Readings above 50 indicate that the manufacturing sector is expanding. In addition, data in the report which measures prices paid for raw materials jumped to the highest level in years. Investor concern that this increase may be a signal that broader inflation measures may rise was bad for mortgage rates.
The earnings data in Friday’s Employment report offset some of the fears about future inflation. With strong wage growth seen in December, investor concerns about wage inflation were elevated heading into the Employment report. The worries were eased, though, as wage growth was far lower than expected. In January, the annual rate of wage inflation was 2.5%, down from 2.9% as originally reported in December. In addition, the December reading was revised a little lower. Mortgage rates improved on the data.
Investors liked that the statement issued following this week’s Fed meeting contained no surprises. There was no change in the federal funds rate or in the guidance for the pace of future rate hikes. Important for mortgage rates, there also was no change in policy regarding the reinvestment of principal payments on the Fed’s portfolio of mortgage-backed securities and Treasury bonds. Mortgage rates improved following the release of the statement.
Next week will be a light one for economic data. The JOLTS report, which measures job openings and labor turnover rates, will be released on Tuesday. Consumer Sentiment will come out on Friday. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. There will be several Fed speakers next week as well.