Cat and Mouse Game
For many years during and after the recession, the monthly jobs report was important to gauge the strength of the recovery. However, during the past two years, the release of the report has taken on a new meaning. Now we are not only measuring the strength of the economy, but also tying that information directly to actions by the Federal Reserve Board’s Open Market Committee. If we added 250,000 jobs in a particular month five years ago, that was good news. But we did not have to worry about the Fed raising interest rates as a result of that information. Today, a strong report can lead us to direct action by the Fed.
And so it is with the report which came out on Friday. The increase of jobs of 138,000 and the revision of last month’s data was seen as weakness. However, the unemployment rate moved to 4.1%, another post-recession low, and monthly wage growth came in at forecast. The question at this point is — are we approaching full employment, which means we are also experiencing a shortage of labor? This information, taken together with the previous month’s report, tells us that there is still a decent chance that the Fed will act when they meet next week, but slightly less of a chance than before the report was released.
The meeting will also be accompanied by the release of economic projections which will give us a gauge of where the Fed thinks that the economy is heading in the next several months. Keep in mind that the Fed will be considering other information which measure the strength of the economy. For example, on Tuesday last week, measures of personal income and spending for April came in with moderate strength following weak readings in March. Until the Fed meets next week, we can’t say exactly how they will react, but certainly the data we saw last week give us some important clues.
The Weekly Market Update
Rates were stable last week, remaining at their lowest level of the year. For the week ending June 1, Freddie Mac announced that 30-year fixed rates fell one tick to 3.94% from 3.95% the week before. The average for 15-year loans remained at 3.19%, and the average for five-year adjustables moved up to 3.11%. A year ago, 30-year fixed rates averaged 3.66%.
Attributed to Sean Becketti, chief economist, Freddie Mac — “In a short week following Memorial Day, the 10-year Treasury yield fell 4 basis points. The rate on 30-year fixed loans remained relatively flat, falling 1 basis point to 3.94 percent and once again hitting a new 2017 low.”
Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.