December marked another consecutive month of healthy job growth, helping keep the unemployment rate low while wages rise.
There were 156,000 jobs added in December, just slightly below the expected growth. However, a revision to November’s job growth shows that it was even stronger than expected, so any shortcomings in job growth were offset.
While jobs continued to get added, the unemployment rate actually rose, albeit slightly. This is due to a rising level of participation in the economy, and it is actually a sign of economic strength.
But the most interesting part of the December’s payroll report was the healthy increase in average hourly earnings.
Last month, average earnings went up a sizable 0.4 percent. While the increase might not seem like much, it has added to increased earnings over the past year. Now, year-on-year changes in wages are 2.9 percent, a massive increase for one year.
To put it in perspective, interest rates have increased by 0.25 percent during that same period. This means wage earning are outpacing rising rates, a positive sign for home buyers.
However, wage rates won’t continue to rise without forcing up mortgage rates, so an increase in mortgage rates could be coming soon.
About Non-Farm Payrolls
A survey of non-farming jobs is conducted each month to gauge the growth of the labor market. The data is presented the following month in the non-farm payroll report.
Because employment is a central part of the economy, the non-farm payroll report is seen as one of the best economic indicators.
The housing market isn’t directly tied to the non-farm payroll report, but the report has a large impact on the way mortgage rates move.
December’s report could mean a long-term increase in mortgage rates. Wages are increasing, and a rise in interest rates and mortgage rates is bound to follow.
One number to keep note of is the number of jobs added. While 156,000 jobs were added, it was well below the expected 175,000 jobs to be added. This could mean that the economy is starting to level out, and growth could be slowing.
If this is the case, mortgage rates won’t be going much higher in 2017. But mortgage rate shoppers will need to keep a lookout for economic news leading up to the next payroll report.
Another report with lower-than-expected growth could mean the economy is slowing down, and it that might push mortgage rates to lower levels.
How Do Payrolls Affect Mortgages?
The most important number for home buyers and mortgage rate shoppers to look at in this report is the increase in hourly earnings.
As hourly earnings rise, inflation is also bound to rise. This is important since the Fed has been wanting to see an increase in inflation rates for a while now.
If inflation begins to rise, the Fed will react by increasing the federal funds rate. When the federal funds rate rises, all rates across the nation rise – mortgage rates included.
However, a weaker-than-expected report next month could make the Fed hesitant to raise their rate. If they announce that they’re weary of a higher rate, investors could react with a “flock to safety” by putting their money in “safer” investment options.
This almost always means lower mortgage rates.
It will be important to see how the Fed responds to the economy at their next meeting. Scheduled for the end of the month, the Fed’s meeting probably won’t yield a higher rate, but it could shed some light on what the Fed thinks about the economy.