Mortgage Rates Feeling Pressure Following Data This Morning

Mortgage rates are moving slightly higher so far today. This morning was all about the Jobs Report.  It showed:

• August Non-Farm Payrolls (NFP) increased by 156K vs est of 180K
• July NFP was revised lower from 209K to 189K
• June NFP was revised lower from 231K to 210K
• The more important 3-month rolling average is now 185K, it was 195K in July  Average Hourly Earnings on a MOM basis rose 0.1% vs est of 0.2%. It is now at $26.39 per hour
• On a YOY basis, remained at July's pace of 2.5%. The market was expecting 2.6%
• U3 Unemployment Rate increased to 4.4% vs estimates of 4.3%
• U6 Unemployment Rate (Non-Seasonally Adjusted) dropped from 8.9% down to 8.6%
• Participation Rate remained at 62.9%
• Hours Worked: A rare drop from 34.5 hours a week down to 34.4 hours.

How is the bond market viewing this? While the headline NFP looks like a big miss, it will be revised a couple of more times. The Fed and the bond market look at trends and the trend of 185K per month is a good level. It is still a mystery as to when (and if) wage inflation will appear, but it is steadily showing monthly gains. Overall, it's a solid report. It's not too weak, and it's certainly not too strong. The essential point here is that the bond market was already not pricing in ANY Fed action until later in 2018 and today's jobs data will do nothing to change that.

Another key data point was the national ISM Manufacturing Index for August came in at 58.8 vs est of 56.5 which is red-hot. The ISM Prices Paid component remained at a very elevated 62.0. Consumer Sentiment from the University of Michigan's final August reading was revised from 97.6 to 96.8.

Overall, the economic data today was solid and a little better than expected. The MBS market (mortgage rates) will be under some pressure today heading into the long weekend. I expect average mortgage rate volatility throughout the day with markets trading normally today, with no early close that generally occurs prior to a Monday holiday.