Job Gains Surge

Headlines surrounding the conflict in the Middle East continued to create some ups and downs in mortgage markets this week. At the same time, a surprisingly strong jobs report had less of an impact on rates than you might expect. By the end of the week, mortgage rates were slightly higher.

Despite the strong headline number, some of the other details were more in line with expectations. Average hourly earnings rose 0.3% for the month, bringing annual wage growth to 3.1%. That's down slightly from 3.2% the month before and marks the slowest annual increase since May 2021. The unemployment rate held steady at 4.1%, while the participation rate (the percentage of working-age people in the labor force) improved. After hitting its lowest level since March 2021 last month, participation has picked up as significantly more people have entered the workforce.

We also received two closely watched reports on business activity from the Institute for Supply Management (ISM). The services sector unexpectedly jumped to 55.4, while manufacturing dropped a bit to 54.6 from its strongest reading since May 2022 last month. Both sectors remain comfortably in expansion territory above 50, suggesting businesses are still growing despite economic headwinds. Shifting consumer preferences and higher tariffs on imported goods have helped domestic manufacturers narrow the performance gap with service firms over the last few years.

Bottom Line: For now, investors are balancing several competing forces: slowing economic growth, persistent inflation, and continued global uncertainty. Inflation has come down significantly from its peak, but it's still well above the Federal Reserve's target. That means the Fed is likely to remain cautious about its next moves. For mortgage rates, that could mean more volatility in the weeks ahead. Daily movements will continue to depend on incoming economic data, comments from the Federal Reserve, and developments around the world.

Looking ahead, attention will remain fixed on the conflict in the Middle East. Investors also will monitor comments from U.S. Fed officials about future monetary policy. The next European Central Bank meeting will take place on Thursday. For economic data, Existing Home Sales and the Producer Price Index (PPI) will come out on Thursday. The Consumer Price Index (CPI), a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services, will be released on Friday. Mortgage markets will be closed on Monday for Labor Day.