Wage Growth is Lone Bright Spot
Against a consensus forecast of 190K, the economy added 151K jobs in January. This was down from average gains of about 280K over the prior three months. The unemployment rate declined from 5.0% to 4.9%, the lowest level since February 2008.
While job gains in January were a little lower than expected, investors focused more on the surprisingly strong wage growth. Average hourly earnings, an indicator of wage growth, rose 0.5% in January, which was well above the consensus forecast. Investors raised their outlook for future inflation based on the wage data, forcing mortgage rates a little higher after the report.
By contrast, nearly all of the data released earlier in the week was positive for mortgage rates. U.S. manufacturing activity has slowed sharply in recent months. The ISM national manufacturing index is at the lowest level since 2009. The stronger dollar and weakening demand in other countries have hurt the sector. Manufacturing makes up a relatively small portion of U.S. economic activity, though. More disturbing to investors, the ISM national services index declined to the lowest level since early 2014. The service sector represents over 80% of the U.S. economy.
Week Ahead
Factors:, The JOLTS report, will come out on Tuesday. JOLTS measures job openings and labor turnover rates. Retail Sales will be released on Friday. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. Fed Chair Janet Yellen will be speaking on Wednesday and Thursday.
Volatility: Increasing
Trend: Neutral
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