Boulder – On the first Friday of the month, we gain insight into how our nation’s economy is fairing. The Federal Reserve and other markets look at the jobs report and react based on what it says. And that reaction has implications for homebuyers; it influences whether or not the Fed raises short-term rates.
The report involves two components – new jobs created and hourly wages. In July, the US added 209,00 new jobs, around 30K more than expected. This equates to a national unemployment rate of 4.3 percent. For comparison, the unemployment rate in 2008 was 6.5 percent (the highest since March of 1994).
But, while this all speaks to a strong economy, the news regarding hourly wages isn’t as rosy. Per CNBC, one of the reasons for this is that lower hourly wages lead to lower consumer spending, which is what can make or break an economy. In fact, with the nation nearing full capacity on the employment front, the hourly wage is the most important factor in the market. The job force has grown, now income needs to follow.
Of course, spending isn’t limited to splurging. It’s about necessities, including the mortgage. If people don’t make an adequate amount of money per hour, it affects their ability to make ends meet and buy homes.
It’s estimated that hourly wages will rise by 2.6 percent by the end of the year (the average hourly wage is presently $26.22). If they surpass these expectations, it’ll be a sign that the economy is more buoyant than thought. If they fail to meet expectations, it may be a sign that the middle is shrinking and will continue to do so if the average hourly wage isn’t increased.
Now back to the Federal Reserve: the positive economic signs (the addition of new jobs and minimal unemployment) may be enough for them to raise interest rates again within the upcoming month. They recently raised short-term interest rates by a quarter point in mid-June – the third raise since December of 2016. While it’s not something home buyers like to see, it’s a sign that the government thinks the economy is standing on solid ground. Yet for the economy to truly flourish, the hourly wage must flourish, as well. Time will tell if it can.
By Michaela Phillips, Guaranteed Rate, Inc. Michaela Phillips is the Vice President of Mortgage Lending at Guaranteed Rate, Inc. Contact Michaela at 303.579.5517, e-mail email@example.com or visit michaelaphillips.com. NMLS:312874.