The Jobs Report

The monthly release of the jobs report tends to be one of the most volatile times for mortgage rates. Whether the jobs number exceeds expectations or misses can impact rates in a few different ways.

The Fed

Friday’s jobs report is likely to inform the Fed’s decision to raise or hold the federal funds rate at the September FOMC meeting. A better than expected jobs report is likely to strengthen the case for advancing a rate hike while a big miss could cause the Fed to further delay any rate increases.

Inflation

Strong job numbers signal a healthy economy, but also raise concerns for inflation. In inflationary environments, lenders are being paid back in money that is worth less than when they lent it out, so as a result, lenders typically demand higher interest rates to offset that risk. Inflation concerns also raise the likelihood that the Fed will increase the federal funds rate.

Market Reaction

Since the employment situation provides clues as to the overall health of the economy, a disappointing jobs report can cause investors to panic and take a “flight to safety.” A “flight to safety” occurs when economic uncertainty causes investors to pull dollars out of equities and move them into more stable assets, like bonds. This demand shift results in increased bond prices and and a corresponding decrease in rates. Since mortgages behave like bonds, mortgage rates traditionally follow suit.

The consensus expectation for Friday’s jobs report is that the economy added 180,000 jobs in August. A significantly better than expected jobs report is likely to move mortgage rates higher while a disappointing jobs number will likely cause rates to move lower. Anything in the ballpark of that 180,000 will likely have a negligible effect.

What’s your guess for how many jobs we’ll see added in August? Tweet your guess to @LenderLogix using the hashtag #NFPguesses and the the closest guess will win a $25 Amazon gift card!

NFP stands for “Non Farm Payroll” which is the metric released by the US Department of Labor.

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