Economic Update for the week ending June 4, 2022

The U.S. economy added 390,000 new jobs in May - The Department of Labor and Statistics reported that 390,000 new jobs were added in May. The unemployment rate held steady at 3.6%. The labor-force participation rate (the share of workers with a job or actively looking for a job) increased to 62.4% in May, up from 62.2% in April. It is well below the 63.6% level before the pandemic. Average hourly wages increased 5.2% from May 2021, down from a 5.5% year-over-year increase in April which is another sign that inflation may be moderating

Stock markets ended the week slightly lower- Stock markets dropped on Friday to end the week lower as investors tried to find meaning in the May jobs report. The number of new jobs beats estimates showing that the Fed’s rate hikes have not slowed hiring as much as analysts expected. That led them to believe that the Fed would need to continue the frequency and size of the rate hikes more expeditiously. At the same time, the number of new jobs did decline slightly from the historic high monthly gains over the past 12-months. Wage growth also settled down from its decades-high, year-over-year gains which led investors to feel inflation was moderating and interest rate hikes are working. Stocks initially rallied after the report was released but fell later in the day after investors digested it to search for meaning. All in all, it was a fairly benign report. The dollar valuation increased against other currencies. The dollar is at its highest level in two decades. That’s not something you would normally see in an inflationary period unless that inflationary period is overseas as well, which is the case.

A strong dollar makes imports less expensive, and exports more expensive. That could affect manufacturing in the U.S. as those goods become more expensive when exported to countries with weaker currencies. It’s a puzzling time!

  • The Dow Jones Industrial Average closed the week at 32,899.70 down 0.9% from 33,212.60 last week. It is down 9.5% year-to-date.

  • The S&P 500 closed the week at 4,108.54, down 1.2% from 4,158.25 last week. The S&P is down 13.8% year-to-date.

  • The NASDAQ closed the week at 12,012.73, down 1% from 12,131.13 last week. It is down 23.2% year-to-date.

U.S. Treasury bond yields - The 10-year treasury bond closed the week yielding 2.96%, up from 2.74% last week. The 30-year treasury bond yield ended the week at 3.11%, up from 2.97% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – Home mortgage rates appear to be stabilizing. The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of June 2, 2022, for the most popular loan products were as follows:

  • The 30-year fixed mortgage rate was 5.09%, almost unchanged from 5.10% last week.

  • The 15-year fixed was 4.32%, almost unchanged from 4.31% last week.

  • The 5-year ARM was 4.04%, down from 4.20% last week. Rates were higher on Thursday and Friday so next week's survey may show higher rates.

Initial Jobless Claims

Initial Jobless Claims for the week ending May 28th came in at 200k, a nice beat compared to the market expecting 210k in claims. Continuing Claims for the week ending May 21st was at 1.309mm, also a nice beat compared to the market expectations of 1.34mm. This is still a pretty hot report for the labor market.

ISM Manufacturing PMI

ISM Manufacturing PMI for May came in hotter than expected at 56.1, beating expectations of 54.5. The New Orders index was up 1.6 points to 55.1, which is a three-month high, while the Production index rose +0.6 to 54.2. "The US manufacturing sector remains in a demand-driven, supply chain-constrained environment," Timothy Fiore, chair of ISM's Manufacturing Business Survey Committee, said in a statement. He added that "sentiment remained strongly optimistic regarding demand, with five positive growth comments for every cautious comment."

Case Shiller HPI

S&P CoreLogic Case Shiller 20 city HPI for the month of March was +2.42% MoM, beating expectations of +1.9%, and YoY, the 20-city index was up +21.17%, also above the market expectations of +20.00%. Tampa, Phoenix, and Miami were the cities that reported the highest YoY gains among the 20 cities surveyed.

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