Many reports have revealed numbers below expectations as investors begin to look into what the rest of the year has in store as the economy continues to recover from the COVID pandemic.
Employment Report Falls Short of Expectations
The highly anticipated monthly employment report was an enormous miss. In April, the economy gained just 266,000 jobs, which was far below the consensus forecast of 975,000.
The unemployment rate increased to 6.1%, above the consensus for a decline to 5.8%. In April, average hourly earnings rose 0.7% from March, which was far above the consensus forecast for just a slight increase but was still only 0.3% higher than a year ago.
ISM Manufacturing Index Drops Unexpectedly
A couple of other significant economic reports released from the Institute of Supply Management (ISM) also fell short of the forecasts, unexpectedly dropping to 60.7.
Similarly, the ISM national services index fell to 62.7, below the consensus of 64.0. While these two reports did not meet the elevated expectations of investors, levels above 50 indicate that the sectors are expanding.
Rising Inflation Worries Investors Post-Pandemic
Since inflation reduces the value of future cash flows, higher levels are negative for mortgage-backed securities (MBS) and thus for mortgage rates. With the reopening of the economy, investors have been worried about rising inflation.
The reduced economic activity resulting from the pandemic caused a large decline in inflation last year, which was one of the factors responsible for record low mortgage rates.
In April, the core PCE price index, the inflation indicator favored by the Fed, was 3.1% higher than a year ago, matching the consensus forecast, but up from an annual rate of increase of 1.9%.
The Consumer Price Index (CPI), which excludes the volatile food and energy components, jumped 0.8% from March, well above the consensus forecast for an increase of just 0.2%.
Core CPI was 3.0% higher than a year ago, up from an annual rate of increase of 1.6% last month.
Housing Inventory Remains Obstacle as Existing Home Sales Fall
A lack of inventory remained a major obstacle for the housing sector, as April existing home sales unexpectedly fell 3% from March.
Despite the modest decline, sales still were 34% higher than a year ago and 11% higher than April 2019. The number of homes for sale was 21% lower than a year ago.
In April, housing starts fell 10% from March, which was below expectations. Builders say that rising prices and shortages for land, materials, and skilled labor are restraining the pace of construction.
Fed Expected to Reduce Pandemic-Created Monetary Policies
As the economy gradually improves, it is expected that the Fed at some point will reduce the loose monetary policy measures implemented during the pandemic to help the recovery.
In the detailed minutes from the April 28 Fed meeting, investors primarily were seeking guidance on the timing for scaling back the Fed’s massive bond buying program.
For further information on the mortgage rates get in touch with one of the title and escrow specialists at Plymouth Title Guaranty Corporation.
Information accredited to MBSQuoteline.
Please note: The safety of our staff and clients is our highest priority. Effective immediately, Plymouth Title Guaranty Corp. will be taking the following precautions to limit the spread of the COVID-19 virus:
All purchase transactions need to take place at a Plymouth Title Guaranty Corp. closing office.
- If a party to the closing is not feeling well, please contact your closer before the closing so appropriate precautions can be taken.
- We ask visitors to utilize the restroom in our building upon arrival to thoroughly wash their hands before entering our office.
- Only individuals required to sign and/or deliver documents at closings will be allowed in our office. Specifically, closings will be limited to borrower(s), seller(s), agents, and lenders.
- All pens used in the closing will be given to the client after use.
- All closing rooms will be cleaned and disinfected in-between each closing.
- Those picking up checks at our office will be instructed to call our main line and request to speak to a staff member who will plan for delivery to the lobby or parking lot of our office.
- All staff will refrain from shaking hands before or after closings and ask clients to do the same.
Please be advised that our staffing may be impacted during this unprecedented event. While we are committed to continuing to provide outstanding service, we ask for your patience in the face of this pandemic.