After January employment and manufacturing reports came in stronger than expected, average 30-year fixed mortgage rates climbed back above 7% on average. Mortgage rates generally mirror yield on 10-year Treasury bonds and can therefore be heavily influenced by Federal Reserve interest rate policies.
Most analysts anticipate mortgage rates to remain at historically low levels through 2024, yet when exactly they will start declining remains unknown.
January Employment Report
January’s jobs report was a pleasant surprise to experts despite being one of the more difficult months to predict due to seasonal workers being let go after Christmas and businesses tightening budgets in preparation for next year. Notably, 353,000 jobs were added in January – far surpassing market estimates.
It was encouraging to note that most major sectors, excluding mining and logging, saw employment gains in 2013. Leisure and hospitality, professional services, retail trade, health care services were particularly notable beneficiaries.
All this could push back the timing of expected rate cuts by the Federal Reserve. Mortgage rates, which track yield on 10-year Treasury bonds, are heavily impacted by what actions of the Fed take. Most market participants currently expect rates cuts by March or May; this month’s strong jobs report could push this timeline even further out; yet mortgage rates still remain very competitively priced even without further Federal action being taken by them.
January Manufacturing Report
Economic activity in the manufacturing sector expanded for 20 consecutive months in January after 28 consecutive months of expansion, according to ISM’s Manufacturing ISM Report on Business.
ISM’s New Orders Index surged into expansion territory in January with a reading of 52.5 percent, up 2.3 percentage points from December’s seasonally adjusted figure. Two of six largest manufacturing industries — Transportation Equipment and Chemical Products — reported increases in new orders during this month.
In January, the Production Index also registered growth with an impressive reading of 35.7.
January Retail Sales Report
Retail sales increased at a healthy clip last month, driven by favorable weather and post-holiday discounting. When adjusted for seasonal variation, retail-sales data points to an expanding economy that’s creating some inflationary pressure – an important sign for investors since inflation could prompt the Federal Reserve to raise interest rates to combat economic growth and price rises.
The Commerce Department’s advance retail sales report released Wednesday showed overall retail sales increased 3.2% year-on-year in January from December, surpassing market expectations of 1.8% growth. Excluding autos and restaurants, total retail sales excluding them rose 2.3% with online shopping contributing significantly towards these gains; furniture/home furnishing stores experienced the largest percentage gain followed by motor vehicle dealers/parts dealers – however these figures weren’t adjusted for inflation which has left market participants uncertain as to the strength of consumer spending overall and economy overall.
January Industrial Production Report
The Federal Reserve’s January industrial production report indicated that manufacturing output had dropped while mining output remained flat, but utilities output had experienced dramatic decreases which more than offset these declines and led to overall growth of 0.5%.
The decrease in utilities output was driven mainly by fluctuating temperatures which reduced demand for heating services, with an additional decline attributable to factory output outside motor vehicles and parts, which saw significant gains last month.
This report suggests that production cycles have reached their apex, with most market groups posting index levels lower than last year; exceptions being paper products, transit equipment and information processing equipment whose strength suggests prices continue to climb, potentially leading to increased raw material costs for manufacturers.
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