Strong Job Gains

Raleigh Mortgage GroupUncategorized

The major labor market data released on Friday exceeded the forecasts of economists. Despite this unexpected strength, however, investors think that the economy is slowing, and mortgage rates ended the week slightly lower.

The economy added 272,000 jobs in May, well above the consensus forecast of 190,000. Particular strength was seen in the healthcare, leisure/hospitality, and government sectors. Another surprise was that the unemployment rate unexpectedly rose from 3.9% to 4.0%, the highest level since January 2022. Average hourly earnings were 4.1% higher than a year ago, above the consensus forecast, up from an annual rate of 4.0% last month.

Two other significant economic reports released this week from the Institute of Supply Management provided a mixed message. The ISM national services sector index rose to 53.8, handily beating the consensus, while the national manufacturing index unexpectedly dropped to 48.7. Readings above 50 indicate an expansion in the sector and below 50 a contraction. Since the economy emerged from the pandemic, consumers have shown a preference for services over goods. 

As expected, the European Central Bank (ECB) reduced benchmark interest rates by 25 basis points to 3.75%, down from a record 4% where it had been since September 2023. This was its first rate cut since September 2019. The statement released after the meeting again emphasized that future monetary policy decisions will be based on incoming economic data. Investors anticipate that there will be one more rate cut by the ECB this year. 

The next Fed meeting will take place on Wednesday. No change in rates is expected, and investors will look for officials to elaborate on their plans for future monetary policy. For economic reports, Wednesday also will be the big day with CPI. The Consumer Price Index (CPI) is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services. Import Prices will be released on Friday.

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