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The latest economic data revealed that inflation is still quite sticky and that the labor market remains tight, supporting the case for additional monetary policy tightening from the Fed. As a result, mortgage rates ended the week higher.
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The PCE price index is the inflation indicator favored by the Fed. In May, core PCE, which excludes food and energy to reduce volatility, was up 4.6% from a year ago, matching the consensus forecast and down slightly from an annual rate of 4.7% last month. Costs of services continued to increase more than prices for goods.
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The annual rate of increase in Core PCE remains far above the Fed's target level of 2.0%. After peaking in September at 5.2%, many investors thought that it would continue to ease every month, but progress quickly stalled. Core PCE prices are still increasing at roughly the same annual rate seen in November. This is particularly relevant because how quickly aggressive Fed monetary policy tightening will bring down inflation has enormous implications for financial markets.
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The Department of Labor releases the total number of new claims for unemployment insurance each week, and the latest reading was just 239,000. This was far below the consensus forecast and the lowest level since May. With prior readings in June consistently above 260,000, levels not seen since October 2021, it appeared that the labor market might be loosening a bit. However, the figures this week mostly dashed those hopes, and investors raised their outlook for future Fed rate hikes.
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In housing news, the big story continues to be the lack of previously owned homes on the market. According to Realtor.com, new listings in the last week of June were an enormous 29% lower than during the same period last year. The major beneficiaries of this shortage are home builders. Sales of new homes in May unexpectedly jumped 12% from April to their best level since March 2022 and were 20% higher than last year at this time.
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Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy. For economic reports, the ISM national manufacturing index will come out on Monday and the ISM services sector index on Thursday. The key Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be some of the most highly anticipated economic data of the month. Mortgage markets will close early on Monday and will be closed on Tuesday in observance of July Fourth.
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| Weekly Change |
| 10yr Treasury |
rose |
0.10 |
| Dow |
rose |
500 |
| NASDAQ |
rose |
250 |
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| Calendar |
| Mon |
7/3 |
ISM Manufacturing |
| Thu |
7/6 |
ISM Services |
| Fri |
7/7 |
Employment |
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All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
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