Over the past week, the labor market data was the primary influence on mortgage rates. Weaker than expected job gains were favorable for mortgage rates, and rates ended the week at the lowest levels of the year.
While the recent labor market data contained mixed news, investors focused on a shortfall in job gains. Friday's report from the Bureau of Labor Statistics (BLS) revealed that the economy added just 138,000 jobs in May, well below the expected gain of 185,000. In addition, downward revisions subtracted 66,000 jobs from the results for prior months. A separate survey from the BLS showed that the unemployment rate unexpectedly fell from 4.4% to 4.3%, which was the lowest level since May 2001. If the unemployment rate drops due to workers getting jobs, it is viewed as a sign of strength. In May, however, much of the decline was caused by people leaving the labor force, which is not positive news for the economy. The downside miss on job gains caused investors to reduce their outlook for future inflation, which was good for mortgage rates.
Additional labor market data from the BLS — the Job Openings and Labor Turnover Survey (JOLTS) — was released on Tuesday. It showed that job openings in April rose to a record high level. The quits rate was unchanged at a high reading of 2.1%. Workers generally are more willing to voluntarily leave their jobs if they are confident that they will find another one. The large number of unfilled positions and the high willingness to quit suggest that some companies may be having difficulty finding people to hire. Overall, this report contained signs of strength. While the JOLTS report rarely causes much market reaction, Fed Chair Yellen has pointed to this report as important data to determine labor market conditions.
Looking ahead, tomorrow could be a big day. There will be a European Central Bank (ECB) meeting, testimony from former FBI Director James Comey, and British elections. British Prime Minister Theresa May is expected to win, but polls indicate that she and her party have far less support now than they had a couple of months ago. Prime Minister May is hoping to gain a large majority in parliament as she prepares to negotiate the British exit from the European Union. After tomorrow, investors will be looking ahead to June 14, which will feature a Fed meeting, the report on retail sales, and the Consumer Price Index (CPI) inflation data. A federal funds rate hike is widely expected at this meeting.