Payroll Numbers, Wage Gains Much Stronger Than Expected: Higher Rates Ahead?

Written By: David Reed
Wednesday, January 16, 2019

Well, this was certainly a surprise. The first business Friday of each month is when the Labor Department >

The more important number from the Labor Department report is how many new jobs were created in December. Analysts were expecting a solid number but something closer to 177,000 new jobs. Instead, the number of new jobs hit 312,000. Thatrsquo;s a lot. Further, wage gains increased by 3.2 percent which is the fastest pace in nearly nine years. With more money in consumerrsquo;s pockets that can help keep an economy rolling as consumers feel more confident about their jobs and their financial position.

Okay, so does all this tell us about the future of mortgage rates? The Federal Reserve hiked the Federal Funds rate by 0.25 percent in December. In November, Fed Chair Powell reaffirmed there could be two more such hikes in 2019 but didnrsquo;t make as strong of a commitment to the move as with previous comments. And on January 4 of this year, Powell said the Fed lsquo;will be patientrsquo; with monetary policy as it sits back and watches how the overall economy performs.

While the Federal Reserve doesnrsquo;t affect your standard 30 year fixed rate it does provide investors with guidance on what the economy may do in the future. That standard 30 year fixed rate is tied to a specific bond and just like any other bond, when there is a greater demand for a bond, the yield falls. Investors donrsquo;t buy bonds for a large return but instead is a safety channel from uncertain equity markets. When the economy is buzzing right along, investors will tend to sell bonds and allocate more money into stocks.

This tells us that if this trend continues, we will in fact see higher mortgage rates ahead. There are those that are pointing out this strong jobs report is unsustainable and there are other recent economic reports that show some weakness in the economy and the stock boom will be short lived. If thatrsquo;s the case, while rates might be higher soon, they wonrsquo;t be as high as the December jobs numbers would indicate.