News/Blog

Solid Job Gains

Friday’s highly anticipated monthly labor market report was roughly in line with expectations, and mortgage rates ended the week nearly unchanged.

In May, the economy gained 559,000 jobs, a little below the consensus forecast of 650,000. Particular strength was seen in the leisure and hospitality sectors. The unemployment rate fell to 5.8%, slightly below the consensus of 5.9%. Average hourly earnings, an indicator of wage growth, were 2.0% higher than a year ago, up from an annual rate of increase of 0.4% last month.

Even with another month of solid job gains, the economy still has a long way to go to recover the losses due to the pandemic. It has about seven million fewer jobs than it did early last year. This is a primary reason why Fed officials have expressed a desire to move slowly before tightening monetary policy.

A couple of other significant economic reports released this week from the Institute of Supply Management (ISM) remained at very high levels, as expected. The national manufacturing index rose to 61.2, and the national services index increased to 64.0, a record high. Levels above 50 indicate that the sectors are expanding. Of note, a large number of companies reported difficulties in hiring enough workers to keep up with growing demand.

Looking ahead, investors will continue watching global Covid case counts and vaccine distribution. Beyond that, the Consumer Price Index (CPI) will come out on Thursday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. The next European Central Bank meeting also will take place on Thursday.

Weekly Change
10yr Treasuryfell0.01
Dowrose100
NASDAQrose50
Calendar
Thu6/10CPI
Thu6/10ECB Meeting
Fri6/11JOLTS

Inflation Climbs

The two major reports released this week on inflation and durable goods were roughly in line with expectations, and mortgage rates ended nearly unchanged.
The reduced economic activity resulting from the pandemic caused a large decline in inflation last year, which was one of the factors responsible for record low mortgage rates. With the distribution of the vaccine and the reopening of the economy, investors are now concerned that inflation may be heading much higher, and the latest data reinforced this view.
The core PCE price index is the inflation indicator favored by the Fed. In April, core PCE was 3.1% higher than a year ago, matching the consensus forecast, but up from an annual rate of increase of 1.9% last month. The question facing investors is whether higher inflation is mostly due to temporary factors related to the reopening of the economy or to more persistent issues, and the answer will have a big impact on future mortgage rates.
In economic terms, durable goods are items which last three years or longer, tend to be expensive, and generally are purchased infrequently, such as large appliances and vehicles. In April, new orders of durable goods fell 1.3% from March, which was far below the consensus forecast for a moderate increase. However, excluding the transportation category, which contains mostly aircraft orders that are highly volatile from month to month, new orders exceeded expectations with an increase of 1.0% from March. In addition, the figures for March were revised higher. As a result, the report was viewed as roughly neutral overall for mortgage rates.
Similar to last week’s report on existing home sales, the data on new home sales released this week fell short of expectations. In April, new home sales declined 6% from March, and the March results were revised significantly lower. A lack of inventory, especially in the lower price range, remained a major obstacle. The median new home price of $372,400 was 20% higher than last year at this time.
Looking ahead, investors will continue watching global Covid case counts and vaccine distribution. Beyond that, the monthly Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. The ISM national manufacturing index will come out on Tuesday and the ISM national services index on Thursday. Mortgage markets will be closed on Monday for Memorial Day.
Weekly Change
10yr Treasuryflat0.00
Dowrose400
NASDAQrose300
Calendar
Tue6/1ISM Manuf
Thu6/3ISM Services
Fri6/4Employment

Home Sales Fall

With little major economic news, it was a quiet week for mortgage markets, and rates ended nearly unchanged.

A lack of inventory remained a major obstacle for the housing sector, as April existing home sales unexpectedly fell 3% from March. Despite the modest decline, sales still were 34% higher than a year ago (which is somewhat misleading due to the partial shutdown of the economy at that time) and 11% higher than April 2019. The median existing-home price jumped 19% from last year at this time to a record level of $341,600.

On a darker note, the number of homes for sale was 21% lower than a year ago. This represents just a 2.4-month supply nationally, well below the 6-month supply which is considered a healthy balance between buyers and sellers. Given the critical need for more homes in many areas, the report on housing starts released this week was a bit disappointing. In April, housing starts fell 10% from March, which was below expectations. Builders say that rising prices and shortages for land, materials, and skilled labor are restraining the pace of construction.

As the economy gradually improves, it is expected that the Fed at some point will reduce the loose monetary policy measures implemented during the pandemic to help the recovery. In the detailed minutes from the April 28 Fed meeting released on Wednesday, investors primarily were seeking guidance on the timing for scaling back the Fed’s massive bond buying program. According to the minutes, some officials felt that if the economy continued to improve rapidly “it might be appropriate at some point in upcoming meetings to begin discussing a plan” for a reduction in bond purchases. Investors who were hoping for a more precise time frame were disappointed.

Looking ahead, investors will continue watching global Covid case counts and vaccine distribution. Beyond that, New Home Sales will be released on Tuesday and Pending Home Sales on Thursday. The core PCE price index, the inflation indicator favored by the Fed, will come out on Friday.

Weekly Change
10yr Treasuryflat0.00
Dowfell100
NASDAQrose100

Calendar
Tue5/25New Home Sales
Fri5/28Core PCE
Fri5/28Personal Income

Rising Inflation

Despite some major economic news, it was a relatively quiet week for mortgage markets. There were no significant surprises from the inflation data, the GDP report, or the Fed meeting, and mortgage rates ended the week nearly unchanged.

The reduced economic activity resulting from the pandemic caused a large decline in inflation last year, which was one of the factors responsible for record low mortgage rates. With the distribution of the vaccine and the reopening of the economy, investors are now concerned that inflation may be heading much higher, and the latest data reinforced this view.

The core PCE price index is the inflation indicator favored by the Fed. In March, core PCE was 1.8% higher than a year ago, matching the consensus forecast, but up from an annual rate of increase of just 1.4% last month. While both Fed officials and economists have been expecting increases of this magnitude, there are differing views on whether higher inflation will be a temporary spike or persist for years.

Gross Domestic Product (GDP) is the broadest measure of economic activity. During the first quarter, GDP rose at an annualized rate of 6.4%, which was very close to the consensus forecast. This was the second best reading since 2003, behind only the third quarter of last year when the reopening of the economy provided a major lift. Particular strength was seen in consumer spending, boosted by the rollout of the vaccine and the distribution of stimulus checks.

Wednesday’s Fed meeting contained no surprises and caused little reaction. There were no policy changes and the statement released after the meeting was very similar to the prior one. Fed officials repeated that they would like to see “substantial further progress” toward their employment and inflation goals before tightening monetary policy. In short, there was no reason for investors to alter their outlook for future Fed actions.

Looking ahead, investors will continue watching Covid case counts and vaccine distribution. Beyond that, the monthly Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the ISM national manufacturing index will come out on Monday and the ISM national services index on Wednesday.

Weekly Change
10yr Treasuryflat0.00
Dowfell200
NASDAQfell50
Calendar
Mon5/3ISM Manufacturing
Wed5/5ISM Services
Fri5/7Employment

Service Sector Shines

The growth and inflation data released this week was stronger than expected nearly across the board. Despite this, however, mortgage rates ended the week a little lower.

The most significant economic report this week exceeded expectations by a considerable amount. The ISM national services index jumped from 55 to 64, far above the consensus forecast of 59, and the highest level ever recorded. The service sector accounts for more than 75% of U.S. economic activity, and readings above 50 indicate that it is expanding.

Last week’s key Employment data revealed that companies are hiring back workers let go due to the pandemic even more quickly than anticipated, and Tuesday’s JOLTS report also pointed to exceptional strength in the labor market. At the end of February, job openings jumped to 7.4 million, well above the consensus forecast, and the most since January 2019. Unfilled positions reflect increased demand for more workers, a sign of tightness in the labor market.

The reduced economic activity resulting from the pandemic has caused a decline in inflation, which has been one of the factors responsible for record-low mortgage rates. With the vaccine rollout moving forward and the economy reopening, investors are now worried that inflation may be heading higher, and this week’s data amplified those concerns. The Producer Price Index (PPI) is a widely followed monthly inflation report that looks at the price change for raw materials and intermediate goods used to make final products. In March, PPI jumped 1.0% from February, far above the consensus forecast of 0.5%, and it was 4.2% higher than a year ago, the highest annual rate of increase since 2011.

Looking ahead, investors will continue watching Covid case counts and vaccine distribution. Beyond that, the Consumer Price Index (CPI) will come out on Tuesday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. Retail Sales will be released on Thursday. Since consumer spending accounts for over two-thirds of all economic activity in the US, the retail sales data is a key indicator of growth. Housing Starts will come out on Thursday and Existing Home Sales on Friday. Housing Starts will come out on Friday.

Weekly Change
10yr Treasuryfell0.05
Dowrose400
NASDAQrose300
Calendar
Mon4/13CPI
Mon4/15Retail Sales
Fri4/16Housing Starts

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Impressive Job Gains

The important labor market and manufacturing data released this week were much stronger than expected. Despite this, however, mortgage rates ended the week with little change.

Friday’s highly anticipated monthly Employment report revealed very impressive results. In March, the economy gained 916,000 jobs, far above the consensus forecast of 625,000, and revisions added 156,000 jobs to the results for prior months. Particular strength was seen in the hospitality and construction sectors.

The unemployment rate dropped from 6.2% to 6.0%, matching expectations. Average hourly earnings, an indicator of wage growth, fell slightly from February, below the consensus for a modest increase. They were 4.2% higher than a year ago, down from 5.2% last month. Most of the unexpected job creation was in lower-paying sectors, causing average wages to decline.

Unanticipated strength also was seen from this week’s closely watched manufacturing data. The ISM national manufacturing index jumped to 64.7, well above the consensus forecast of 61.5, and the highest level since 1983. Readings above 50 indicate an expansion in the sector, which accounts for roughly 12% of the economy.

Given the news from the labor market and the manufacturing sector, it’s no surprise that Consumer Confidence in the U.S. has increased to the highest level since the beginning of the pandemic. This index from the Conference Board jumped from 90.4 in February to 109.7 in March, far above the consensus forecast and the best reading in a year. The rollout of the vaccine, the reopening of the economy, and the distribution of stimulus checks have helped make consumers more optimistic about future economic conditions.

Looking ahead, investors will continue watching Covid case counts and vaccine distribution. Beyond that, it will be a light week for economic data. Of note, the ISM services index will come out on Monday and the PPI inflation data on Friday.

Weekly Change
10yr Treasuryrose0.03
Dowrose100
NASDAQrose300
Calendar
Mon4/5ISM Services
Mon4/5Factory Orders
Fri4/9PPI

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Volatile Week

It was another rough week for mortgage markets, as investors attempt to determine the appropriate level of yields for the current economic environment. It looked promising Wednesday afternoon when the Fed meeting revealed no policy changes and rates dropped from their peak. However, the climb resumed the next day, and mortgage rates ended the week higher.

As expected, the Fed made no change to the federal funds rate, and its statement contained no significant surprises. Notably, the Fed did not give any indication of adjusting its current $120 billion monthly pace of bond purchases. In addition, most officials expect that the federal funds rate will remain at current levels, near zero, through 2023. However, the growth and inflation forecasts from officials were significantly higher than in December, with median GDP growth for 2021 up from 4.2% to 6.5%, which would be the strongest level in decades. Given the increased optimism about the economic outlook, investors are watching closely for signs that the Fed will begin to scale back its bond purchases.

Since consumer spending accounts for over two-thirds of all economic activity in the US, the retail sales data is a key indicator of growth. Sales were extremely volatile during the first half of 2002 due to the pandemic, but they then held relatively steady each month during the second half. Volatility has returned during the first couple of months of this year, however. After soaring an upwardly revised 7.6% in January due to the distribution of stimulus checks, retail sales unexpectedly declined 3.0% in February, restrained by severe weather in many regions.

Looking ahead, investors will continue watching Covid case counts and vaccine distribution. Beyond that, Existing Home Sales will be released on Monday and New Home Sales on Tuesday. Personal Income and the Core PCE price index, the inflation indicator favored by the Fed, will come out on Friday.

Weekly Change
10yr Treasuryrose0.10
Dowfell200
NASDAQfell100
Calendar
Wed3/22Existing Home Sales
Thu3/23New Homes Sales
Thu3/26Core PCE

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Powerful Job Gains

Mortgage rates have been on an upward path this year, and stronger than expected economic data caused the trend to continue this week. In addition, Fed officials gave no indication that they intend to attempt to halt the recent rise in yields. As a result, mortgage rates ended the week at their highest levels in months.

Long-term bond yields, including mortgage rates, have climbed roughly 50 basis points this year due to improving economic conditions. With the vaccine rollout and massive government stimulus, the outlook for economic activity looks extremely promising, which means that inflationary pressures could increase. On Thursday, Chair Powell acknowledged the strength but did not give any indication that the Fed intends to attempt to restrain long-term bond yields. According to Powell, Fed officials recognize that stronger economic activity may lead to “transitory increases in inflation,” but that the central bank will be “patient” before changing monetary policy. Some investors had hoped that Powell might indicate that policy changes were under consideration to help contain the rise in long-term yields.

In February, the economy gained a solid 379,000 jobs, which was roughly double the consensus forecast. Strength was seen in the leisure and hospitality sector, which was hit particularly hard by the pandemic. From a level of 6.3% last month, the unemployment rate unexpectedly fell to 6.2%. Average hourly earnings, an indicator of wage growth, were an impressive 5.3% higher than a year ago, matching expectations.

Two other closely watched reports released this week contained mixed results. The ISM national manufacturing index rose to 60.8, above the consensus forecast of 59.0, up from a low of 41.5 in April, and matching the highest level since 2004. By contrast, the ISM national services index declined to 55.3, well below the consensus forecast of 58.5, and the lowest level since May. Readings above 50 indicate an expansion, meaning that both sectors are growing, but at different speeds.

Looking ahead, investors will continue watching Covid case counts, vaccine distribution, and the size of the government stimulus spending bill. Beyond that, the Consumer Price Index (CPI) will come out on Wednesday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. The next European Central Bank meeting will take place on Thursday.

Weekly Change
10yr Treasuryrose0.15
Dowfell100
NASDAQfell700
Calendar
Wed3/10CPI
Thu3/11ECB Meeting
Thu3/11JOLTS

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Rising Inflation

Mortgage rates have been on an upward path this year, and the trend continued this week. With the rollout of the Covid vaccine and additional government stimulus on the way, most investors expect to see a surge in economic activity. As a result, mortgage rates ended the week at their highest levels in months.

Bond yields have gone up rapidly this year mostly due to an improving outlook for economic growth, which increases inflationary pressures. Both the government and the Fed are providing massive amounts of stimulus to boost the economy, and the vaccine rollout is expected to unleash enormous pent-up demand in hard hit areas such as travel. In addition, the Treasury must issue bonds to fund the extra government spending, and this added supply causes yields to rise.

The reduced economic activity resulting from the pandemic caused a significant decline in inflation last year, which was one of the factors responsible for record low mortgage rates. However, investors are now concerned that inflation may be heading higher. In January, the core PCE price index was 1.5% higher than a year ago, which was above the consensus forecast, and up from an annual rate of increase of 1.4% last month.

During his semi-annual testimony this week, Fed Chair Powell suggested that easy monetary policy will remain in place for a while since the economy is “a long way from our employment and inflation goals.” In particular, he noted that the economy still needs to recover 10 million jobs lost due to the pandemic. While investors are concerned about rising inflation, Powell appeared to be less worried. He said that we might see higher inflation later this year as a result of pent-up demand, but that most of the increase would be just temporary. According to Powell, Fed officials project that it could take three years for inflation to sustainably rise to their target levels.

Looking ahead, investors will continue watching Covid case counts, vaccine distribution, and the size of the government stimulus spending bill. Beyond that, the monthly Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the ISM national manufacturing index will come out on Monday and the ISM national services index on Wednesday.

Weekly Change
10yr Treasuryrose0.20
Dowfell400
NASDAQfell600
Calendar
Wed3/1ISM Manuf.
Thu3/3ISM Services
Fri3/5Employment

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Home Sales Remain Strong

It was a relatively uneventful week for mortgage markets, and rates ended a little lower, a bit above the record low levels seen late in 2020.

The spectacular rebound in the housing sector from weakness during the spring due to the partial shutdown of the economy has continued. In December, Existing Home Sales unexpectedly increased from November and were 22% higher than a year ago. Looking at the full year, 2020 saw the strongest sales pace since 2006. The median existing-home price was 13% higher than a year ago.

Inventory levels, however, were down 23% from a year ago to record lows and remained the primary obstacle to even stronger sales activity. The number of homes for sale was at just a 1.9-month supply nationally, well below the 6.0-month supply which is considered a healthy balance between buyers and sellers. Encouragingly, though, Thursday’s report on housing starts contained more optimistic news in this area. In December, single-family housing starts unexpectedly rose 12% from November and were 28% higher than a year ago. This was the eighth straight month of gains. Similarly, single-family building permits, a leading indicator of future construction, increased 8% from November and were 30% higher than a year ago.

The European Central Bank (ECB) made no policy changes at Thursday’s meeting and repeated that its massive bond purchase program will run until at least March 2022. The meeting statement said that the ECB “decided to reconfirm its very accommodative monetary policy stance.”

Looking ahead, investors will continue watching Covid case counts and vaccine distribution. The next Fed meeting will take place on Wednesday. Recent comments from officials have made it clear that rate hikes will not be seen any time soon, so investors mainly will be looking for guidance on the Fed’s inflation outlook and its bond purchase program. Beyond that, fourth quarter GDP, the broadest measure of economic activity, will be released on Thursday. The core PCE price index, the inflation indicator favored by the Fed, will come out on Friday.

Weekly Change
10yr Treasuryfell0.01
Dowrose100
NASDAQrose500
Calendar
Wed1/27Fed Meeting
Thu1/28GDP
Fri1/29Core PCE

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)