There’s no doubt that the biggest economic news this week was Friday’s unbelievably strong labor market report. This was positive news for the stock market, but it caused mortgage rates to end the week a little higher.
For perspective, typical monthly readings were for job gains of around 200,000 in 2019. In April, the economy lost a staggering 20 million jobs, and the consensus forecast for May was for a massive decline of another 8.0 million. Instead, the economy added a whopping 2.5 million jobs. With the gains, the unemployment rate dropped from 14.7% to 13.3%, well below the consensus forecast for an increase to 20.0%.
The details of the report contained nothing to diminish the amazingly positive results. The leisure and hospitality sector, after losing 9.7 million jobs in April, gained 1.2 million in May. Construction added about another one-half million. In general, the sectors which were hurt the most by the shutdown of much of the economy due to the pandemic showed the largest rebounds.
The other major economic reports released this week also contained clear signs of a rebound. The May ISM national services index rose more than expected to 45.4 from a reading of 41.8 in April. Similarly, the ISM national manufacturing index increased to 43.1 from 41.5 in April. Since stronger economic activity raises the outlook for future inflation, this week’s economic data was negative for mortgage rates.
Looking ahead, investors will continue to watch for news about medical advances, government stimulus programs, and plans for reopening the economy. Beyond that, the next Fed meeting will take place on Wednesday, and investors will be looking for guidance about monetary stimulus programs. The Consumer Price Index (CPI) also will come out on Wednesday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services.
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