Weekly Economic Update – 6.5.17

Good news for mortgage rates.  Last week the tame inflation data and weaker than expected labor market readings were favorable for mortgage rates.  Rates ended the week lower, at the best levels of the year.

Friday’s report from the Bureau of Labor Statistics showed that the economy added just 138,000 jobs in May, well below the consensus of 185,000.  In addition, downward revisions subtracted 66,000 jobs from the results for prior months.  Through May, the economy has added an average of 162,000 jobs per month this year, down from an average pace of 187,000 jobs per month during all of 2016.  The unemployment rate, which is based on a separate survey, unexpectedly fell from 4.4% to 4.3%, which was the lowest level since May 2001.  This was mixed news, as a good portion of the decline in the unemployment rate was due to people leaving the labor force.  Since slower economic growth reduces the outlook for future inflation, the labor market data was good for mortgage rates.

The inflation readings released showed that current inflation levels remain low, which also was positive for mortgage rates.  The core PCE price index (the inflation indicator favored by the Fed) revealed that core inflation was just 1.5% higher than a year ago, down from an annual rate of 1.8% two months ago.  In addition, annual wage growth remained steady near the levels seen since late 2015.

Despite the tame inflation data, recent comments suggest that most Fed officials still expect inflation to gradually rise toward the Fed’s target level of 2.0% over the medium term. For example, the Fed’s Jerome Powell said on Thursday that weak inflation readings over the last couple of months can be explained by “transitory” factors and that he expects wage inflation to increase.  However, some key officials are beginning to question whether this will take place.  The Fed’s Lael Brainard this week said that she might soften her outlook for future monetary policy if we continue to see weak inflation data (Layman’s Terms – Vote to NOT increase rates).

Looking ahead, it will be a light week for economic data and I do not anticipate much rate fluctuation.

Please let me know if you have any questions in regards to this, or if there is anything we can do for you and your valued clients.

Thank you for your continued support, have a productive week.

Stuart Crawford
SVP, Regional Manager
V.I.P. Mortgage, Inc.

AZ: LO0911271
NM: 156166

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