Powerful Job Gains

Stronger than expected labor market and services sector data was great news for the economy this week, but it was negative for mortgage markets, and rates ended a little higher.

The pace of labor market improvement has picked up significantly over the last couple of months, but it remains to be seen what effect the spread of Covid will have on future results. Not surprisingly, a large proportion of the jobs gained this year have been in sectors which were hurt the most by the pandemic. Fed officials have repeatedly noted that the timing of monetary policy tightening will be based largely on the amount of progress toward their labor market goals, and investors will be keeping a close eye on the impact of rising Covid case counts. 

A couple of other significant economic reports released this week from the Institute of Supply Management (ISM) also revealed very strong results. The national services index unexpectedly surged to 64.1, a record high, while the national manufacturing index came in at 59.5. Levels above just 50 indicate that the sectors are expanding, and readings above 60 are rare. Of note, a large number of companies reported difficulties in hiring enough workers to keep up with growing demand.

Looking ahead, investors will closely watch Covid case counts around the world. They also will look for hints from Fed officials about the timing for changes in monetary policy. Beyond that, the JOLTS report, which measures job openings and labor turnover rates, will come out on Monday. The Consumer Price Index (CPI) will be released on Wednesday. CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services.