Improving US employment exceeds expectations, and increased optimism about Europe were unfavorable contributors on mortgage rates this week. The Fed’s purchases of mortgage-backed securities by the use of QE3 helped counterbalance the losses, so after several weeks of declines, mortgage rates ended the week slightly higher.
The Employment report on Friday, October 5th, 2012, was big news this week. Against the forecast of 120K, the economy added 114K jobs in September, yet the data from prior months was revised higher by 86K. The Unemployment Rate unexpectedly dropped to 7.8%, the lowest level since January 2009, from 8.1% last month. Average Hourly Earnings, an indicator of wage growth, increased moderately from August. Any way you look at it, the September data exceeded expectations. This increases future inflationary pressures, which is negative for mortgage rates.
The results for the change in the number of jobs and for the Unemployment Rate are derived from differing data pools, and sometimes the two sources display wide discrepancies in a particular month. The Unemployment Rate is based on a survey of a small sample of households, and it can be extremely volatile, while the Payrolls data is based on information collected from businesses and tends to be more precise. This month, the household survey showed a gain of 783K jobs, which was the highest level since 1983, and far above the increase seen in the Payrolls data. Over longer periods, the two sources generally show similar results, but not necessarily in the short-term.