Economic update for the week ending July 9, 2022

Stock markets finished the week higher – Signs of cooling inflation, and three straight weeks of declining gas prices from their peak in mid-June had investors optimistic about future earnings, interest rates, supply chain issues, and labor shortages.

On Thursday ADP, the nation’s largest payroll company, estimated job growth above the level of expectations. On Friday the Labor Department reported that 372,000 new jobs were created in June. That was 100,000 jobs more than what was expected. With job growth so robust and unemployment so low it’s hard to see how consumer spending, which accounts for almost 70% of the U.S. economy, will stall. If consumers keep spending, it will be hard to bring down inflation. Experts and the Fed had hoped that higher interest rates would increase borrowing costs for companies and slow the pace of hiring. The June jobs report shows that despite all of the measures taken by the Fed, job growth is still robust. It is hard to imagine inflation declining to a healthy level without slowing job growth and wages. Investors now expect further and swifter action by the Fed than they did in the first three days of the week as a result of the strong job growth numbers in June. The CPI report is due out next Wednesday. That will be the best gauge of how the Fed’s actions have impacted inflation so far.

  • The Dow Jones Industrial Average closed the week at 31,338.15, up 0.1% from 31,097.26 last week. It is down 13.8% year-to-date.

  • The S&P 500 closed the week at 3,899.38, up 1.9% from 3,825.33 last week. The S&P is down 18.2% year-to-date.

  • The NASDAQ closed the week at 11,635.31, up 4.6% from 11,127.85 last week. It is down 25.6% year-to-date.

U.S. Treasury bond yields higher this week - The 10-year treasury bond closed the week yielding 3.09%, up from 2.88% last week. The 30-year treasury bond yield ended the week at 3.27%, up from 3.11% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of June 30, 2022, for the most popular loan products were as follows:

The 30-year fixed mortgage rate was 5.30%, down from 5.70% last week.

The 15-year fixed was 4.45%, down from 4.83% last week.

The 5-year ARM was 4.19%, down from 4.50% last week.

The 30-year jumped a little at the end of the week after the strong jobs report. The hope is that job growth will stall as the Fed raises rates and tightens credit in order to slow the economy to curtail inflation. Strong job growth and low unemployment put more pressure on inflation. Next week’s survey rates should be a little higher.

The U.S. economy added 372,000 new jobs in June - The Department of Labor and Statistics reported that 372,000 new jobs were added in June. That exceeds experts' expectations by 100,000 jobs! They expected interest rate hikes and other tightening measures by the Fed to slow the overheated economy to slow hiring. So far these measures have not slowed the robust pace of job growth. The unemployment rate held steady at 3.6% which is just slightly higher than the 52-year low of 3.5% just before the pandemic. The labor-force participation rate (the share of workers with a job or actively looking for a job) was 62.2% in June, down from 62.5% in May. It is well below the 63.6% level before the pandemic. Experts are puzzled as to why more workers are not returning to the workforce, especially with wages up, pandemic stimulus running out, and so many available job openings. Survey data reported that there were 11.3 million available Jobs which amounted to about 2 positions for every job seeker.

Average hourly wages increased 5.1% from one year ago. Wages were up 5.2% year-over-year in May and 5.5% year-over-year in April which may be a sign that inflation may be moderating.

Initial Jobless Claims

Initial Jobless Claims were up +4k to 235k for the week ending July 2nd vs. the prior week's revised level of 231k. Claims for the week rose to their highest levels since January 15th, even though the range this year has been relatively low vs. historical norms. Continuing claims, which lag by a week, jumped up to 1.375mln vs. the revised level in the prior week of 1.324mln.

Challenger Job Cuts

The Challenger Job Cuts Report showed layoffs rising to 32,517 in June from a prior 20,712 in May, and 20,476 this time last year. While this is still historically low, it is the highest print since February of last year. The labor market continues to be hot; however, this report suggests it is cooling a bit, which should lend to a low number in the BLS report for nonfarm payrolls.

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