Strong Job Gains Continue

There were few surprises in the economic data released over the past week. Favorable comments from Fed Chair Yellen’s speech on Tuesday helped mortgage rates end the week lower.

Rarely does the important monthly employment report match expectations as precisely as it did on Friday. Against a consensus forecast of 210,000, the economy added 215,000 jobs in March. Average hourly earnings, an indicator of wage growth, rose 0.3% from February, matching the consensus. The one surprise was an increase in the unemployment rate from 4.9% to 5%. This was mostly due to people entering the workforce, however, making it a sign of strength rather than weakness.

Friday’s data on the ISM national manufacturing index caused a bigger reaction than the employment report. The index rose to 51.8, above the consensus, and the highest level in seven months. Readings above 50 indicate an expansion in the sector. The unexpected strength in manufacturing was negative for mortgage rates.

Over the last couple of weeks, investors heard widely divergent views on future monetary policy from various Fed officials. The Fed statement from the March 16 Fed meeting emphasized a very gradual approach to tightening monetary policy. Then, several Fed officials made the case for tightening at a more rapid pace. On Tuesday, Yellen guided investors back to the dovish camp, as she discussed the reasons to proceed cautiously with federal funds rate hikes. Mortgage rates improved based on her outlook for low inflation and for a longer timeline for tightening.

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