Jobs Shocker: The Monday Market Update

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Job Report Weak

The Chairperson of the Federal Reserve Board spoke at an event at Harvard University on the last Friday of May. The probability for a June or July rate hike increased because of her statement that a rate hike is “probably” appropriate in the near term, given an improvement in economic data. “As I have said in the past, it’s appropriate I think for the Fed to gradually and cautiously increase our overnight interest rate over time and probably, in the coming months, such a move would be appropriate,” she said.

A very important slate of this data was released this week, headlined by the May jobs numbers released one week after Yellen’s talk. The job numbers were very weak with only 38,000 jobs added, while the unemployment rate fell from 4.9% to 4.7%. These numbers could be seen as contradictory, but the fact that more people dropped out of the job force, lowering the labor force participation rate, shed doubt about the lower unemployment rate. All in all, it will be seen by the Fed as a sign that the economy is not improving as much as we would like.

Other numbers released recently have been mixed, with positive numbers from the real estate sector and consumer outlays, but lower construction spending and slightly lower readings for consumer confidence. What does this mean? The jobs numbers are the most important, and this means that the chances for an immediate rate hike by the Fed have decreased significantly. We won’t have to wait long to find out about a rate hike in June as the Fed’s Open Market Committee meets next week.

The Monday Market Update

Rates rose slightly in the past week, but these numbers were released before the weak jobs report was unveiled. Freddie Mac announced that, for the week ending June 2, 30-year fixed rates rose to 3.66% from 3.64% the week before. The average for 15-year loans increased to 2.92%. The average for five-year adjustables also increased to 2.88%. A year ago, 30-year fixed rates were at 3.87%, approximately one-quarter of one percent higher than today's levels.

Attributed to Sean Becketti, chief economist, Freddie Mac -- "Since jumping 11 basis points on May 18th, the 10-year Treasury yield has leveled-off around 1.85 percent. Rates on home loans continue to adjust to this new level with the 30-year fixed rate inching up another 2 basis points this week to 3.66 percent. Recent statements by the Fed appear to have persuaded the market that a rate hike may come sooner than later. However, the market is fickle, and Friday's employment report has the potential to swing opinion 180 degrees in the other direction."

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.