Overview: Over the past week, investors raised their expectations for economic growth. Even though the latest inflation data was right on target, this stronger outlook for the economy was negative for mortgage markets, and rates climbed to the highest levels of the year.
Federal Reserve officials keep a close eye on inflation, and the Personal Consumption Expenditures (PCE) Price Index is their favored indicator. In February, core PCE, which excludes food and energy to reduce short-term volatility, was up 2.8% from a year ago, matching the consensus forecast. This was down from an annual rate of 2.9% last month and the lowest level since March 2021. While still moving in the right direction, it remains above the Fed's target of 2%.
Two other significant economic reports released over the past week by the Institute for Supply Management (ISM) contained mixed news. The ISM Services Index unexpectedly dropped to 51.4, while the ISM Manufacturing Index exceeded expectations with an increase to 50.3. Levels above 50 indicate an expansion in the sector, and below 50 indicates a contraction. Of note, this ended 16 straight months of readings below 50 for the manufacturing sector, the longest streak in about 15 years.
The Job Openings and Labor Turnover Survey (JOLTS) report suggested weaker conditions in the labor market compared to the last couple of years. At the end of February, there were 8.8 million job openings, far below the peak of over 12 million in March 2022. In addition, the "quits" rate remained at just 2.2% for the fourth straight month, down from about 3% at the end of 2021. Since people generally are more willing to voluntarily leave their jobs when they are confident about finding a better one, a lower quits rate is consistent with a looser labor market. Similarly, a lower number of openings suggests companies face less pressure to raise wages to hire enough workers.
Core PCE (annual % change)
Week Ahead
April 5
Employment Report
April 10
Consumer Price Index (CPI)