Unemployment Rate Falls

Volatility remained high for mortgage markets this week. The major labor market and inflation data came in very close to the expected levels, however, and the daily movements were roughly offsetting. According to the weekly survey from Freddie Mac, mortgage rates are roughly 1.5% higher than they were one year ago, at the highest level since December 2018.?

The closely watched Employment report released on Friday came in right on target. Against a consensus forecast of 475,000, the economy gained 431,000 jobs in February, and revisions added 95,000 to the results from prior months. The unemployment rate fell from 3.8% to 3.6%, the lowest level since early 2020. Average hourly earnings were an impressive 5.6% higher than a year ago, up from an annual rate of 5.2% last month.

The PCE price index is the inflation indicator favored by the Fed. In February, core PCE was 5.4% higher than a year ago, up from 5.2% last month and the highest annual rate since 1983. For comparison, readings were below 2.0% during the first three months of 2021. One of the big questions for investors is how quickly inflation will moderate as pandemic-related disruptions are resolved.?

Another significant economic indicator released this week from the Institute of Supply Management (ISM) remained at a high level by historical standards. The national manufacturing sector index for March came in at 57.1. Levels above 50 indicate that the sector is expanding, and readings above 60 are rare.

Looking ahead, investors will continue to closely follow news on Ukraine and will look for additional Fed guidance on the pace of future rate hikes and balance sheet reduction. Beyond that, it will be a very light week for economic data. The biggest release will be the ISM national service sector index on Tuesday.?