Lower Oil Prices and Job Numbers Cause Rates to Improve

Mortgage rates continued to see a bit of volatility this week, reacting to changing oil prices and ongoing tensions in the Middle East. However, the biggest driver came at the end of the week, when weaker than expected labor market data pushed mortgage rates lower. We will end the week back to 6.375% for our best 30-year fixed Conventional scenario.

In July, the U.S. economy lost 23,000 jobs, surprising economists who had expected employers to add about 80,000 jobs. On top of that, payroll numbers for the previous two months were revised lower by a combined 103,000 jobs. Construction and healthcare continued to add jobs, while leisure and hospitality saw significant declines. possibly due to the conclusion of the World Cup.

Wage growth also came in softer than expected. Average hourly earnings increased by just 0.1% for the month, far below the consensus forecast. On an annual basis, wages rose 3.2%, down from 3.4% the previous month and the slowest pace since May 2021. The unemployment rate unexpectedly declined to 4.1% from 4.2%, but the improvement was not entirely encouraging. The drop was largely driven by people leaving the labor force rather than stronger hiring, with the participation rate (the percentage of working-age people in the labor force) falling to the lowest level since March 2021.

Bottom Line: Investors are continuing to weigh a mix of slowing economic data, stubborn inflation, and global uncertainty. While inflation has cooled from its peak, it's still above the Federal Reserve's target, which is likely to keep policymakers cautious. As a result, mortgage rates will probably remain volatile from day to day as investors react to Fed comments, economic data, and geopolitical events.

Looking ahead, attention will remain fixed on the conflict in the Middle East and the proposed deal to ease tensions. Investors also will monitor comments from Fed officials about future monetary policy. For economic data, Existing Home Sales will come out on Tuesday. The Consumer Price Index (CPI), a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services, will be released on Wednesday. The Producer Price Index (PPI), another monthly inflation indicator, will come out on Thursday. Retail Sales will be released on Friday.

Hope everyone has a great weekend and thank you for reading.