Employee Productivity and Costs data showed an increase in worker output of 3.0%, exceeding estimates of 2.5%. A secondary reading that tracks labor costs came in below forecasts. Both readings are favorable for bonds and mortgage rates.
Last week's unemployment update showed only 183,000 new claims for benefits were made, down from the previous week's 186,000. Analysts were expecting to see over 200,000 initial filings. The decline is a sign of strength in the employment sector, making the data negative for rates. Fortunately, this is only a weekly snapshot, preventing a stronger bond reaction to the news.
December's Factory Orders data took us back to favorable news for rates. The Commerce Department announced a 1.8% increase in new orders at U.S. factories. This was a bit softer than the 2.2% that was predicted, hinting the manufacturing sector was not as strong as thought. Accordingly, we can label this report slightly favorable for bonds and mortgage pricing.
Tomorrow morning brings us the almighty monthly governmental Employment report. Some of the highly relevant portions of the report will give us the unemployment rate, number of new jobs added or lost and the average hourly earnings change. The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a much smaller increase in payrolls than expected and little or no rise in earnings. Current forecasts are calling for an unemployment rate of 3.6% (up 0.1%) and approximately 190,000 new jobs added to the economy while earnings rose 0.3%. Stronger than expected numbers will likely fuel a stock market rally and selling in bonds that would cause a sizable upward revision to mortgage rates. On the other hand, disappointing numbers should lead to a noticeable improvement in mortgage pricing.
©Mortgage Commentary 2023
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Horizon Credit Union.