Overview: Over the past week, the major economic data contained mixed news for mortgage markets, and none of it caused much reaction. Ahead of a couple of very significant economic events next week, mortgage rates ended slightly higher.
The monthly Employment Report released on Friday presented investors with conflicting data. The economy added 339,000 jobs in May, well above the consensus forecast of 180,000, and there were positive revisions to the results for prior months. Professional services, health care, and leisure contributed the greatest gains. Given this strength in job growth, the strange part was that the unemployment rate unexpectedly jumped from 3.4% to 3.7%, the highest level since October 2022.
While it seems odd for the unemployment rate to rise without job losses, it is not uncommon to see this happen in a particular month. The figures for job gains are calculated from data reported by companies, while the unemployment rate is based on a separate survey of individuals. In addition, the unemployment rate is determined by the size of the work force, meaning the number of people who report that they are actively looking for a job, and this figure is constantly shifting. In the short run, the two components may diverge, but they generally get back in line over longer periods of time. Investors will be watching these figures carefully in coming months to evaluate which indicator better reflects the underlying trend.
From the perspective of Federal Reserve officials, the main focus in the labor market report is the data on wages. Officials closely watch wage growth because it generally raises future inflationary pressures. Average hourly earnings, an indicator of wage growth, increased 0.3% from April, matching the consensus forecast. They were 4.3% higher than a year ago, down from an annual rate of increase of 4.4% last month.
Two other significant economic reports released this week from the Institute of Supply Management were a little weaker than expected. The ISM Services Index was 50.3 and the ISM Manufacturing Index was 46.9. Since readings above 50 indicate an expansion in the sector and below 50 a contraction, this data continues to highlight the consumer preference for services over goods in recent months.
Job Gains (thousands)
Looking ahead, there are two significant events coming up. The Consumer Price Index (CPI) will be released on June 13. CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services. The next Federal Reserve meeting will take place on June 14. Investors are split about whether there will be another 25 basis-point increase in the federal funds rate or whether officials will “pause” for now and leave the door open for a rate hike at the July meeting.