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Economic Data Falls Short
The two most important economic reports released this week both fell short of expectations. Despite these results, mortgage rates ended the week with little change.
Friday's Employment report was mildly disappointing. Against a consensus forecast of 175,000, the economy added 151,000 jobs in August. Despite the slower pace in August, the economy has added an average of 232,000 over the last three months. The unemployment rate remained at 4.9%. Average hourly earnings, an indicator of wage growth, fell slightly short of expectations.
Another important indicator of economic activity also missed to the downside. The ISM national manufacturing index fell to 49.4, well below the consensus forecast, and the lowest level since January. Readings below 50 signal a contraction in the sector. The report suggests that manufacturers continue to face headwinds from a stronger dollar, economic weakness overseas, and reduced spending on machinery and other large equipment from U.S. businesses.
These two reports did little to settle the question of whether the Fed should raise the federal funds rate at its next meeting on September 24. According to futures markets, investors have assigned about a 25% chance of a rate hike at this month's meeting, just slightly lower than before the two reports.
Looking ahead, the most significant economic event likely will be Thursday's European Central Bank (ECB) meeting. The ECB announcement often has an impact on U.S. mortgage rates. It will be a light week for U.S. economic data. The ISM national services index will be released on Tuesday. The JOLTS report, which measures job openings and labor turnover rates, will come out on Wednesday. The Fed's Beige Book also will be released on Wednesday.