Disappointing Job Gains
The major economic news over the past week was positive for mortgage rates. This included weaker than expected U.S. economic data, dovish ECB comments, and increased concerns about the UK leaving the EU. As a result, mortgage rates ended the week lower, near the best levels of the year.
The important monthly jobs report released on Friday was a big disappointment. Against a consensus forecast of 160K, the economy added just 38K jobs in May, which was the lowest level since September 2010. Job gains over the past three months averaged just 116K, far below the average monthly gains of 219K over the prior twelve months.
The unemployment rate declined from 5.0% to 4.7%. This was not a sign of strength, however, as the decline was almost entirely due to people leaving the labor force.
There were few surprises resulting from Thursday’s European Central Bank (ECB) meeting. There was no change in policy. Comments from ECB President Draghi indicated that the ECB expects to maintain loose monetary policy for a long time. Prior to the meeting, some investors thought that the ECB might hint at tighter monetary policy. They viewed the continued dovish stance as better than the alternative, and global bond yields moved lower after the meeting.
A new poll released Tuesday reported stronger support in the UK to leave the European Union (EU) than in prior polls. Before the latest poll, investors had low expectations that the vote would be in favor of Britain exiting the EU. The new data increased the odds. A British exit likely would increase the level of uncertainty in global financial markets and could slow global economic growth. Increased concern led investors to favor safer assets such as bonds, including U.S. mortgage-backed securities.
Looking ahead, Fed Chair Janet Yellen will be giving a speech on Monday. Productivity will be released on Tuesday. The JOLTS report will come out on Wednesday. JOLTS measures job openings and labor turnover rates. Consumer Sentiment will be released on Friday. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.
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