Rates Ease off Long Term Highs but Still Up Slightly for the Week

Happy Friday from Local Mortgage!

Headlines surrounding the conflict in the Middle East continued to move mortgage markets this week. At the same time, a surprisingly strong jobs report had less impact on rates. By the end of the week, mortgage rates were slightly higher.

In August, the U.S. economy gained a massive 162,000 jobs, the most since March, surprising economists who had expected employers to add just 55,000 jobs. On top of that, payroll numbers for the previous two months were revised higher by a combined 55,000 jobs. The largest gains were seen in restaurants/bars, education, and manufacturing.

Despite the strong headline number, some of the other details were more in line with expectations. Average hourly earnings rose 0.3% for the month, bringing annual wage growth to 3.1%. That's down slightly from 3.2% the month before and marks the slowest annual increase since May 2021. The unemployment rate held steady at 4.1%, while the participation rate (the percentage of working-age people in the labor force) improved.

We also received two closely watched reports on business activity from the Institute for Supply Management (ISM). The services sector unexpectedly jumped to 55.4, while manufacturing dropped a bit to 54.6 from last month’s extremely strong reading. Both sectors remain comfortably in expansion territory above 50, suggesting businesses are still growing despite economic headwinds.

Bottom Line: For now, investors are balancing several competing forces: economic growth, persistent inflation, and continued global uncertainty. Inflation has come down significantly from its peak, but it's still well above the Federal Reserve's target. That means the Fed is likely to remain cautious about its next moves. For mortgage rates, that could mean more volatility in the weeks ahead.

Looking ahead, attention will remain fixed on the conflict in the Middle East. Investors also will monitor comments from U.S. Fed officials about future monetary policy. The next European Central Bank meeting will take place on Thursday. For economic data, Existing Home Sales and the Producer Price Index (PPI) will come out on Thursday. 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 Friday. Mortgage markets will be closed on Monday for Labor Day.

Hope everyone has a great Labor Day weekend!