Market Update as of September 12, 2018

Rates Move Up Along With Wage Growth
An uptick in wage growth has the bond market under pressure.  Avg Hourly Earnings came in at +.4% MoM versus the estimated reading of +.2% and .3% in July.  Overall, the YoY year change is up to +2.9% versus 2.7% a year ago.   To be sure, wage growth has been one of the missing ingredients to this economic recovery.  With this strong print, MBS are down 7/32nds and the 10yr yield is up to 2.93%.  I expect the selloff to continue as the 10yr will likely test the 2.96% area (see chart) followed by 3.0% (last month’s high).  Also notable from the report, the unemployment rate remained unchanged at 3.9% and payrolls added +201k versus the economists’ estimate of +190k. While this obviously impacts rates negatively, the fact that folks are finally making more money is a huge positive for everyone. 

Small Businesses All Time High
U.S. small business optimism surged to a record in August as the tax cuts and deregulation efforts of President Donald Trump and the Republican-led Congress led to more sales, hiring and investment, according to a survey by the National Federation of Independent Business. The NFIB Small Business Optimism Index jumped to 108.8 last month, the highest level ever recorded in the survey's 45-year history and above the previous record of 108 in 1983, set during the second year of Ronald Reagan's presidency. The August figure was up from a 107.9 reading in July. The NFIB noted record readings for job creation plans and the amount of owners saying it was a good time to expand. Capital spending plans were the highest since 2007.

660,000 More Jobs Than People
Job openings hit a record in July, closing in on 7 million amid a jump in vacancies for finance and manufacturing, the Labor Department reported Tuesday. Vacancies outnumbered those classified as unemployed by 659,000 for the month, an unprecedented trend that began earlier this year. Openings rose by 117,000 from June, to 6.94 million, and are up 737,000 over the past year, a nearly 12 percent increase, the department said in its monthly Job Openings and Labor Turnover Survey. The "quits" rate, an indicator of worker confidence as it measures those who left their positions voluntarily, also hit a record of 3.6 million, a gain of 106,000, according to Bureau of Labor Statistics records that go back to December 2000. The quits rate of 2.4 percent is the highest recorded since April 2001 and was up one-tenth of a percentage point from a month ago.

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Courtesy of Sotheby's International Realty's in-house Lender Simon Atik, 310.880.8414, Simon.Atik@grarate.com, Vice President of Mortgage Lending, Guaranteed Rate Affinity.

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