After several weeks of strong performance, it was a tough week for mortgage markets. Stronger than expected economic data and an improved economic outlook from the Fed increased concerns about future inflationary pressures. Rising inflation expectations result in higher yields, and mortgage rates increased during the week.
The big news this week was the Employment report. Against a consensus forecast for a loss of -125K jobs in November, the economy lost just -11K, and the figures from prior months were revised higher by 159K. This represented the strongest monthly data since December 2007. The Unemployment Rate unexpectedly dropped to 10.0% from 10.2% in October. While weakness remained in manufacturing and construction, the service sector added jobs. Average Hourly Earnings, an indicator of wage growth, rose slightly.
This week’s housing data also exceeded expectations. October Pending Home Sales rose for the ninth consecutive month, increasing 4% to the highest level since March 2006. The index is up 32% from one year ago. Pending sales are based on contracts signed but not yet closed and are a leading indicator of housing market activity. The homebuyer tax credit again provided a lift.
Next week will be a light one for economic data. The Trade Balance will be released on Thursday. Retail Sales, which account for about 70% of economic activity, will come out on Friday, along with Import Prices and Consumer Sentiment. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.