Jobs report adds to upward pressure on interest rates
Jobs Report (Jan-18)
Job growth of 200,000 was above expectations, and the unemployment rate was unchanged at 4.1%. Average hourly earnings were up 2.9% Y/Y.
- Wage growth was the strongest since May 2009. Wages were up 2.9% Y/Y, which drove concerns about inflation and caused a spike in yields. The wage gains were driven by supervisory workers. Wages for non-supervisory workers, which are about 80% of the labor force rose just 2.4% Y/Y. The labor market remains tight, but the housing market is more so and home prices are still outpacing wages significantly.
- 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.
- The 10 year treasury spiked on the news. The rate jumped to 2.83% from 2.78% immediately following the release. This is the more relevant rate for the housing market and will place upward pressure on mortgage rates.
- More construction is on the way. Residential construction jobs had another good month and are the highest since 2008 as builders work to add supply given the tight inventory and rising home prices.