Upside Surprise in Jobs
Data
Investors have been concerned for
quite a while about the coming supply of new debt needed to pay
for all the government stimulus programs. On top of that, the
economic outlook has been improving sooner than expected. The
combination of these two potentially inflationary developments
pushed mortgage rates higher during the week.
The economic surprise this week came
from the Employment report. Although the economy lost -345K jobs
in May, it was far fewer than the consensus estimate for a loss
of -525K jobs. The Unemployment Rate jumped to 9.4% from 8.9%
in April. A surge in people entering the labor force was responsible
for the unexpected increase in the Unemployment Rate. The labor
market is typically one of the last areas to show improvement
during an economic rebound, so signs of a turnaround are particularly
significant.
Fed Chief Bernanke supported the
notion that the recession would end this year. In testimony before
Congress this week, Bernanke stated that he still expects the
economy to move higher later this year, although it may take
a while for growth to return to average levels. He looked ahead
to measures needed once the economic crisis has passed, such
as containing the budget deficit and reducing government control
of markets. At this point, most investors believe that the Fed
is not inclined to expand the mortgage-backed security (MBS)
purchase program beyond its current level of $1.25 trillion,
unless economic growth falls short of the Fed's outlook.
More evidence that the economy may
be rebounding came from this week's housing data. April Pending
Home Sales rose for the third consecutive month, increasing 7%
from March. Pending Home Sales are a leading indicator, meaning
that future New and Existing Home Sales reports may show increases. |
