Jobs continued to be added at an encouraging pace in October, although the number of added jobs was slightly below what was expected.
There were 161,000 jobs added to the economy in October, marking the fifth month in a row where over 100,000 jobs were added.
Job growth has been steady over the past few years, and while there haven’t been too many months that showed substantial growth, there have been over 15.5 million private sector jobs created since early 2010.
Also encouraging is that unemployment dropped below 5% in October. The current unemployment rate is now 4.9%, which is a relatively low number for unemployment.
The strong numbers from October’s job report, coupled with previous reports that showed similar strength, will likely lead to quicker economic growth.
For mortgage rate shoppers, this could mean higher mortgage rates. The Fed is already planning on raising their rate during their December meeting, and added strength in the economy could influence investors to move to “riskier” investments.
Both actions would cause mortgage rates to increase.
However, neither of those actions has occurred yet. Mortgage rates are still low, but Freddie Mac reported yesterday that rates are on the rise – and it doesn’t seem likely that they’ll drop down very far, if at all.
Current rates are still historically low for this time of the year, so those looking to capitalize on ultra-low rates can are in luck.
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. The non-farm payroll report is one of the best indicators for economic strength.
Mortgage rates are tied closely to economic strength. Generally speaking, mortgage rates increase as the economy is doing well. When the economy isn’t as strong as investors would like, mortgage rates tend to fall.
Because the economy seems to be doing well, it follows that mortgage rates should begin to rise.
One of the best indicators for strength from October’s non-farm payroll report is the 161,000 added jobs. There has been a consistent level of job growth over the past few months, a telling sign that the economy is picking up steam.
Another good piece of news is that wages have grown an average of 2.8% over the past 12 months, the highest clip of wage growth since 2007.
The combination of all the growth in the economy is likely going to be more than enough to convince investors to move away from “safer” investments. As they do so, mortgage rates will begin to rise.
How Do Payrolls Affect Mortgages?
The monthly non-farm payroll report doesn’t directly affect mortgage rates. However, mortgage rates do tend to change whenever good or bad news is reported.
If the economy is strong, investors will move to “riskier” investments. As they do this, the cost of “safer” investments will drop. One of these investments, the 10-year treasury note, is closely tied to mortgage rates. As the cost of a 10-year treasury note drops, mortgage rates tend to drop as well.
Payrolls are also a deciding factor when the Fed considers increasing the federal funds rate. Job growth is an excellent indicator of economic strength, so if growth isn’t what they expect, then they would be less likely to raise rates.
The biggest negative from the most recent payroll report actually comes from outside of the United States. Foreign nations are having a harder time getting their economies to grow, and the Fed could be concerned that rising rates will put pressure on trade with those nations.
It’s a good sign that the nation’s biggest problem is foreign economic strength, but it could play a role in holding the federal funds rate low. This would keep mortgage rates low as well.