While investors continued to closely watch the events in the Middle East, there were few new developments there during the week. As a result, this week's important economic data had the greatest influence on mortgage rates. Daily volatility was high as investors reacted to the major economic reports, but mortgage rates ended the week essentially unchanged.
Much stronger than expected economic data during the week caused investors to prepare for the possibility that the economy is growing more rapidly than expected. The Chicago PMI manufacturing index rose to the highest level since July 1988, and the ISM Services index rose to the highest level since August 2005. Weekly Jobless Claims dropped to the lowest level since May 2008. Meanwhile, the Fed's Beige Book reported that many companies were passing through price increases due to rising commodity prices. As expected, mortgage rates reacted to the data by moving higher.
The results from Friday's Employment report were strong, but they did not exceed expectations. Against a consensus forecast for an increase of 200K jobs, the economy added 192K jobs in February. The Unemployment Rate declined to 8.9% from 9.0% in January. The gains were strong nearly across the board, with the exception of the government sector. Over the longer-term, the private sector must produce new jobs to sustain a recovery, so strength in the private sector was a good sign for the future. Average Hourly Earnings, a proxy for wage growth, fell short of expectations, remaining unchanged from January. Some investors were prepared for a much higher jobs number, and the on target results prompted a reversal of the rise in mortgage rates from earlier in the week.
After a big week, the Economic Calendar will be much lighter next week. The most significant report will be Retail Sales on Friday. Retail Sales account for about 70% of economic activity. The Trade Balance will come out on Thursday, and Consumer Sentiment will be released on Friday. There will be Treasury auctions on Tuesday, Wednesday, and Thursday. Treasury auctions recently have been market moving events.
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