Mortgage Time

[Adam in CO]

Strong Job and Wage Growth Push Rates Higher



Stability in the stock market last week (as compared to the wild ride the week before) caused mortgage investors to return their focus to the economic data, and there were few surprises early in the week. Mortgage rates held steady through Thursday, as investors mostly remained on the sidelines ahead of Friday’s Employment report. When stronger than expected jobs data was released Friday morning, though, they jumped back into the market, pushing mortgage rates higher.

The economy added 97K new jobs in February, close to the consensus forecast, but revisions to prior months raised the total by an additional 55K, which pushed the Unemployment Rate below the expected level. Even more damaging for mortgage markets than the growth in jobs, Hourly Earnings rose at a 4.1% annual rate. The Fed is concerned about higher wage inflation from tight labor markets, and this data effectively crushed investors’ hopes for a Fed rate cut any time soon.

In the housing sector, the January Pending Home Sales index fell 4%, following a comparable rise during the prior month, consistent with a period of stability. The index is based on contracts which were signed but were not yet closed, so it is a leading indicator of future home sales. In addition, comments from former Fed chief Greenspan and Treasury Secretary Paulson reflected the view that the housing market has already reached bottom.

• Also Notable:
• The European Central Bank raised interest rates by 25 basis points to 3.75% as expected
• January Pending Home Sales fell 4%, following a comparable rise during the prior month
• The Fed’s Beige Book noted signs of stabilization in the housing sector
• Former Fed chief Greenspan pegged the odds of a recession in 2007 as one in three

Average 30 yr fixed rate: Last week:-0.04%This week:-0.02%Stocks (weekly): Dow:12,237+73NASDAQ:2,379+2

Week Ahead

Next week’s big news will be the monthly inflation data. The Consumer Price Index (CPI) will be released on Friday. Almost without exception, higher inflation leads to higher interest rates, and CPI is the most widely watched indicator. CPI looks at those finished goods which are sold to consumers. Thursday, the less influential Producer Price Index (PPI) inflation data will come out. PPI focuses on the increase in prices of "intermediate" goods used by companies to produce finished products. The important Retail Sales report will be released on Tuesday. Consumers account for about 70% of economic activity, and this report is a major indicator of spending by consumers. A 10-yr Treasury auction, the Industrial Production report, and two regional manufacturing reports will round out a busy week.