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Bond yields increased Friday as investors reacted to a strong jobs report that included better-than-expected employment numbers and rising wages.

After the jobs release Friday morning, the yield on the benchmark 10-year Treasury note topped 2.9 percent at midday, according to CNBC. Meanwhile, yields on 30 Year Treasurys and 2 Year Treasurys also increased. The yield on the two-year note topped 2.69 percent, its highest level since July 30, 2008.

Jobs number and wages are up

The August jobs report showed encouraging statistics, finishing above expectations at 201,000 total nonfarm payroll jobs. The original forecast estimated 195,000 jobs to be added in August. However, Friday’s jobs report from the Bureau of Labor Statistics also showed that the June and July employment increases were both revised down by 40,000 and 10,000 respectively.

August is a delicate balance for job forecasters, with educators and other seasonal personnel returning to the workforce, so we can expect a slight revision up next month. The early second half of this year has also posed a particularly interesting challenge in hiring with the addition of tariffs imposed by President Trump in early July.  But even after a full month of active tariffs, hiring still rose above expectations with American businesses and professional services leading the way in August at 50,000 new jobs.

It should be noted that many states implemented their mid-year, minimum wage increases on July 1, so payrolls are showing higher than they were in previous months. Employees in private companies saw their wages increase by 10 cents in August with hourly earnings of private-sector production and nonsupervisory employees increasing by 7 cents. Overall, hourly earnings have increased by 77 cents, or 2.9 percent, over the last 12 months.

Eyes on Fed

That 2.9 percent wage increase is significant because it could indicate further economic expansion as the Federal Reserve is being watchful to stave off inflation. The Fed is already expected to raise interest rates by another quarter of a percentage point later this year.

Although this jobs report seems promising, there is still strong concern about future workforce challenges. The unemployment rate is holding steady at 3.9 percent, while the number of discouraged employees (people who aren’t looking for work because they believe there are no jobs for them) remained relatively unchanged from August 2017 to August 2018. The same goes for the marginally attached workforce, which consists of people who are looking for work but had not searched for a job in the four weeks prior to the survey. This leads some analysts to believe the available workforce could start running thin very soon and cause stagnation in hiring.  

More on tariffs

On Friday, President Trump told reporters aboard Air Force One that he was “ready to go” on tariffs for another $267 billion in Chinese goods “if he wants,” according to several news outlets. These would come on top of the $200 billion in goods already targeted by new tariffs.

The Dow Jones Industrials dropped more than 100 points on the news as investors saw this as additional uncertainty on international trade. Many fear trade wars will slow economic growth. This volatility is expected to continue into the fall election season. Expect rate volatility as markets react to the uncertainty.

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About the Author:

Greg Richardson - Senior Advisor of Capital Markets & Strategy

Greg Richardson is Movement's Senior Advisor of Capital Markets & Strategy and a contributing author to the Movement Blog. His weekly market update is a must-read commentary on financial markets, the mortgage industry and interest rates. Greg is an industry veteran who knows how to read the financial tea leaves and make complex industry data easy for loan officers, real estate agents and homebuyers to understand.