Job Gains Fall Short

Julie C. Nichols General

Concerns that the pace of labor market improvement may be slowing helped mortgage rates over the past week. Friday’s key Employment report was weaker than expected. As a result, mortgage rates ended the week lower, near the best levels of the year.

The Employment report released on the first Friday of the month often sets the tone for the month. While the data for April remained relatively strong, it fell a little short of recent levels and investor expectations. Against a consensus forecast of 200K, the economy added 160K jobs in April, which was the lowest level since September 2015. In addition, downward revisions subtracted 19K jobs from the results for prior months. The health care sector performed well, while weakness was seen in the retail sector. The unemployment rate remained at 5.0%. Average hourly earnings, an indicator of wage growth, were 2.5% higher than a year ago, which matched expectations.

Another labor market report, the JOLTS report, receives less attention from investors, partly because its data lags the Employment data by a month. Still, the JOLTS report helps to provide a broader picture of the performance of the labor market, and Fed Chair Yellen has said that she considers it to be valuable data. JOLTS measures job openings and labor turnover rates. Job openings in March increased to levels which were very close to record highs. The "quits rate" also was at levels consistent with a healthy labor market. Employees are more likely to voluntarily leave their jobs if they are confident that they will find a better job. Investors will be watching next month to see if the JOLTS data for April confirms the relative weakness seen in the April Employment report.

Looking ahead, the report on retail sales will be released on Friday. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. The producer price index (PPI) inflation data also will come out on Friday. Reports on housing starts, industrial production, and the consumer price index (CPI) will be released on May 17. CPI is a widely followed monthly inflation report that looks at the price change for goods and services which are sold to consumers.

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