Overview: The major economic data released over the past week was roughly neutral overall. The greatest influence on mortgage markets may have been a rebalancing of investor portfolios at the start of the third quarter, and rates ended a little lower.
In June, the economy added 850,000 jobs, above the consensus forecast of 700,000, and the most since August of last year. Large gains were seen in the hospitality and education sectors. The unemployment rate unexpectedly increased from 5.8% to 5.9%, above the consensus for a slight decline, as more people began to look for work and were officially counted in the labor force. Average hourly earnings were 3.6% higher than a year ago, matching expectations, and up from an annual rate of 1.9% last month.
A couple of other significant economic reports from the Institute of Supply Management (ISM) were off a little from their recent peaks but remained at very high levels. The ISM Manufacturing Index came in at 60.6, and the ISM Services Index came in at 60.1. Readings above 60 are somewhat rare, and those above just 50 indicate that the sectors are expanding. Of note, many companies reported having trouble hiring enough workers to keep up with their growth.
The detailed minutes from the June 16 Federal Reserve meeting did not provide new guidance on the timing for the Fed to begin scaling back its massive bond purchase program. According to the minutes, officials did not feel that sufficient labor market improvement had yet been achieved to tighten monetary policy. Officials were divided about whether to proportionally reduce Treasuries and mortgage-backed securities (MBS) purchases or to reduce MBS by a greater amount, when the Fed does begin to taper.
Looking ahead, investors will monitor comments from Fed officials for hints about the timing of future monetary policy changes and will track COVID case counts globally. Beyond that, the Consumer Price Index (CPI) will come out on July 13. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. The Retail Sales report will be released on July 16. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key indicator of the strength of the economy.
Monthly Job Gains (millions)