Employment numbers disappoint; rates and wages on the rise
- Economy added 148,000 jobs in December, but fell short of expectations
- Global interest rates, including mortgage rates, moved higher
- Wages also increased, a positive indication for home prices and purchase activity
The Labor Department’s December employment report, released on Friday, provided the markets with their first view of the new year into the nation’s job market, now unaffected by the hurricanes that ravaged the South in the fall.
The report, however, was generally disappointing, with the change in nonfarm payrolls adding only 148,000 jobs versus the consensus estimate of 190,000. Nearly 20,000 of the shortfall can be attributed to slashes in retail jobs, as Americans continued the trend of shopping online during the holidays. On a positive note, the workforce saw gains in construction and manufacturing jobs in December, growing by 30,000 and 25,000, respectively. The unemployment rate was unchanged at 4.1%, near historical lows.
While the change in new jobs was weak, average hourly earnings showed signs that the shortage of workers available for hire may finally be putting upward pressure on wages, which grew by 0.3% in December versus 0.1% the previous month. To be clear, November’s 0.1% increase in average hourly earnings was revised down from 0.2% when the report came out a month ago.
Global interest rates—including mortgage rates—moved slightly higher after the report’s release. Wage growth, for the most part, has been absent from the economy, with the housing crisis and inflation serving as the elephant in the room when it comes to Fed monetary policy. While interest rates moved a smidge higher, increased wages are viewed as a huge positive for home prices, home purchase activity and the economy in general.
At the same time, the bond market is certainly feeling the effects of a bull market in the equity markets. On Thursday, the Dow Jones Industrial Average closed above 25,000 for the first time in history. The Dow was up nearly 100 points on Friday following the employment report and showed no signs of reversal. Bonds and stocks have traditionally held an inverse relationship, with one rallying while the other is sold off. The Dow holding at 25,000 is certainly providing some headwinds for interest rates.
Mortgage rates were up only a few basis points, but admittedly, the bond market feels heavy considering what is happening with the stock markets. The 10-year note also moved higher, up to 2.48%. Time will tell if Friday’s rise in wages was a fluke, or if the recent period of low unemployment has finally begun to push them higher.
Jeremy Collett is Guaranteed Rate’s Executive Director of Capital Markets. Market Updates are designed to provide readers with a high-level yet insightful view of how economic news, events and trends affect mortgage rates and the homebuying process.