Mixed Labor Market Data

It was a relatively quiet week for mortgage markets overall. Friday's key labor market data caused some volatility, but its lasting impact was minor. Rates ended the week a little higher.

The biggest surprise was the sharp drop in the unemployment rate to 6.3%, far below the consensus forecast of 6.7%. The decline was due to both hiring gains (a sign of strength) and the departure of 406,000 workers from the labor force (a sign of weakness). The data on job gains comes from actual figures provided by large companies, while the unemployment rate is based on a household survey conducted by the Labor Department. Although these two sources show similar results in the long run, it is common for them to display different levels of strength from month to month.

A couple of other significant economic reports released this week from the Institute of Supply Management (ISM) suggested that job gains may improve in coming months. The ISM national services index unexpectedly rose to 58.7, the highest level in about two years. The ISM national manufacturing index fell to 58.7 in January, just a little below December's reading which was the best since August 2018. Levels above 50 indicate that the sectors are expanding.

Looking ahead, investors will continue watching Covid case counts, vaccine distribution, and the size of the government stimulus spending bill. Beyond that, it will be a very light week for economic reports. Of note, the Consumer Price Index (CPI) will come out on Wednesday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services.