Employment Report in Spotlight: The Weekly Market Update

Employment Report in Spotlight

Fed Watches Carefully

Though the Federal Reserve Board’s comments after their most recent Open Market Committee meeting indicated that the economy is getting stronger, the economic reports released since that time have not supported their statement. The preliminary growth estimate for the economy during the second quarter was much lower than forecast. In addition, consumer sentiment came in slightly less than forecast, while construction spending and factory orders were also lower. Meanwhile the auto and real estate industries continue to show strength.

Overall, these reports made it look less likely that the Fed would be raising rates before the election. However, despite the disappointing economic reports, we know that the most important single economic statistic is the jobs report. A strong report can give the Fed the optimism it needs to raise rates. So how did we do in this regard last week?

The jobs report for July came in strong, with over 250,000 jobs added and the unemployment rate steady at 4.9%. In addition, wages increased slightly more than forecast, a number the Fed is watching carefully for any hint of inflation getting stronger. The bottom line is that we are on pace to add well over two million jobs this year, and because the unemployment rate is not moving down, this means that more Americans are either entering or re-entering the workforce. While the jobs numbers raise the possibility of an increase in rates in September, the other data indicate that rates will still remain very low while we create jobs and this could mean continued good times in the real estate and auto sectors.

The Weekly Market Update

Rates on home loans fell to near 2016 lows in the past week. For the week ending August 4, Freddie Mac announced that 30-year fixed rates decreased to 3.43% from 3.48% the week before. The average for 15-year loans fell to 2.74% and the average for five-year adjustables moved down to 2.73%. A year ago, 30-year fixed rates were at 3.91%, almost one-half of one percent higher than today's levels.

Attributed to Sean Becketti, Chief Economist, Freddie Mac -- "Treasury yields fell last week following both the FOMC's meeting and a disappointing advance estimate for second quarter GDP. Rates on home loans, which had moved up 7 basis points over the past three weeks, responded by erasing most of those gains, falling 5 basis points to 3.43 percent this week for 30-year fixed-rates. Rates on home loans have been below 3.5 percent every week since June 30. Borrowers are taking advantage of these low rates by refinancing. The latest Weekly Applications Survey results from the Mortgage Bankers Association show refinance activity up 55 percent since last year."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.