Jobs growth strongest since July 2016 but wages disappoint
Jobs Report (Feb-18)
Job growth of 313,000 was above expectations, and the unemployment rate was unchanged at 4.1%. Average hourly earnings were up 2.6% Y/Y.
- Wage growth eases, reducing pressure in interest rates. Wages were up 2.6% Y/Y, down from January’s 2.8% Y/Y. The increase in rates that occurred in February was driven in part by concerns about inflation following January’s strong wage growth. This report suggests that mortgage rates should consolidate around current levels as the upward pressure abates.
- There will be more Fed hikes in 2018, but impact on mortgage rates are uncertain. Labor market growth continues to support the Feds rate hike cycle. However, the Fed hiked 3 times in 2017 and mortgage rates fell by 33 bps.
- More construction is on the way. Construction jobs had another good month, up 61,000, and are the highest since 2008 as builders work to add supply given the tight inventory and rising home prices.
- Affordability remains a challenge. The labor market remains tight, but the housing market is more so and home prices are still outpacing wages significantly.