Key Economic Indicators that Affect Mortgage Interest Rates: The Employment Situation

Business people having a discussion.

We continue our look at how economic indicators affect mortgage interest rates, with a dive into The Employment Situation Report—commonly referred to as the jobs report. It is released on the first Friday of every month and, of the indicators we’re discussing in our series, has the most impact on mortgage interest rates. This is because the data has broad implications for the overall health of companies and consumers, and identifies the direction of wage and employment trends. The economy reacts strongly to this report, with interest rates rising on stronger jobs reports and falling on weaker ones.

The Employment Situation Report is comprised of:

Unemployment Rate

The Unemployment Rate is the total labor force that is unemployed, but actively seeking employment. The Bureau of Labor Statistics identifies the Unemployment Rate by analyzing U.S. labor sample surveys, Social Security Insurance statistics and employment office statistics. It then takes this data and compares it to the Current Population Survey, a monthly survey of 50,000 households, to express the unemployment rate.

This statistic is considered a lagging indicator, meaning that it confirms, does not predict, long-term market trends. After peaking in October 2009 at 10%, the Unemployment Rate was back down to 4.7% in December 2016 – a rate we haven’t seen since 2006 and 2007, pre-housing crisis.

Nonfarm Payroll

The Nonfarm payroll represents the total number of paid U.S. workers and tells us how many jobs were created or lost in the previous month, and in which employment sectors. So this is a key indicator in how well the economy is doing. The total nonfarm payroll accounts for 80% of the workers who produce the GDP and directly affects the stock market and the U.S. dollar.

The Take Away

The Employment Situation Report remains one of the most widely watched indicators of the U.S. economy, despite its ability to fluctuate and its continuous revisions. Statistics regarding U.S. employment directly influence financial markets and provide valuable insight on interest rates. For the next Employment Situation Report release date, click here.

In the next edition of our economic indicator series, we’ll be focusing on U.S. housing reports. If you missed our last installment on consumer behaviors, click here.

Want to know the latest on how these reports are impacting rates? Feel free to contact a trusted RPM loan advisor who will explain it in simple terms so you can better understand your financing options and make the choices that are right for you.

By Kendall Taylor