Job Gains Fall Short – June 2019 Edition

Weaker than expected labor market data and dovish comments from central bank officials were favorable for mortgage rates this week. News on the trade negotiations with Mexico and China caused some volatility but had little net impact. Rates ended at their lowest levels in about two years.
Friday’s highly anticipated monthly Employment report revealed a significant downside miss. Against a consensus forecast of 180,000, the economy added just 75,000 jobs in May. In addition, downward revisions subtracted 75,000 jobs from the results for prior months. Average hourly earnings, an indicator of wage growth, also fell short of expectations. They were 3.1% higher than a year ago, down from an annual growth rate of 3.2% last month.

There were many speeches by Fed officials this week covering a wide range of topics. Regarding future monetary policy, the Fed’s Bullard seemed to capture the prevailing sentiment that a rate cut “may be warranted soon” due to low levels of inflation and the risks to the economy from the ongoing trade disputes. Along with Friday’s labor market data, these comments reinforced the widely held view among investors that at least one rate cut will take place before the end of the year.

At Thursday’s meeting, the European Central Bank (ECB) also edged toward looser monetary policy. To help stimulate economic activity, the ECB said it will hold rates at the current record low levels “at least through the first half of 2020,” a shift from its prior guidance of “at least until the end of 2019.” The ECB outlook for European economic growth is just 1.2% this year and 1.4% in 2020. This contrasts with forecasted growth rates above 2.0% for the U.S. over the next couple of years.

On the trade front, investors were more focused on Mexico than China. Following last Friday’s unexpected threat by the Trump administration to impose a 5% tariff on all imports from Mexico beginning June 10, the two sides have not yet reached an agreement, but many sources have indicated that substantial progress has been made. Most investors expect that the tariffs either will be delayed or will be in place for only a short time. There was little fresh news on the negotiations with China this week.

Looking ahead, 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. Retail Sales will be released on Friday. Since consumer spending accounts for about 70% of all economic activity in the U.S., the retail sales data is a key indicator of growth. In addition, Treasury auctions on Wednesday and Thursday could influence mortgage rates.

Weekly Change
10yr Treasury	fell	0.08
Dow	rose	1,200
NASDAQ	rose	300

Calendar
Wed	6/12	CPI
Wed	6/12	10yr Auction
Fri	6/14	Retail Sales

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