Employers added 272,000 jobs in May, well above the consensus forecast among economists for a payroll increase of 180,000 and the 12-month average of 232,000.
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Mortgage rates rebounded on Friday following the unexpectedly strong jobs report, erasing much of the improvement that prospective homebuyers experienced this week.
Employers added 272,000 jobs in May, well above the 232,000 average over the past year and well above economists’ consensus forecast for payrolls to rise by 180,000.
The unemployment rate and number of unemployed people (6.6 million) were little changed from April at 4.0%, but up from 3.7% and 6.1 million a year ago, the U.S. Bureau of Labor Statistics said. report.
Government bond yields soar
sauce: Yahoo Finance.
yield 10-Year Government Bond, barometer Mortgage rates jumped 15 basis points (1 basis point is 1/100 of a percentage point) on Friday to rise to 4.43%, erasing most of this week’s declines.
of CME FedWatch ToolsInvestors who finance most mortgages are becoming less confident that the Fed will cut interest rates in September, according to a research firm that tracks futures markets to gauge the likelihood of the Fed’s next move.
On Thursday, investors were pricing in a 69% chance of one or more Fed rate cuts by Sept. 18. On Friday, futures markets suggested the probability of a September cut had dropped to 54%.
Prior to Friday’s jobs report, mortgage rates had been falling for six days since May 30 following a series of data releases that seemed to suggest the economy was slowing and that the Fed might cut rates.
Mortgage interest rates are on the decline
Mortgage rate locks tracked by Optimal Blue showed the average rate on a 30-year fixed-rate mortgage was 6.88% on Thursday, down 39 basis points from the 2024 high of 7.27% recorded on April 25.
Optimal Blue’s data is delayed by one day, Mortgage News Daily The report showed that rates on 30-year fixed-rate mortgages rose 12 basis points on Friday, in line with the 10-year Treasury yield.
Economists at Pantheon Macroeconomics still expect the Fed to cut short-term interest rates by 1.25 percentage points this year, but noted that surprise employment numbers are often revised up and most indicators point to a summer slowdown.
Ian Shepherdson
“These numbers remove the possibility of the Fed cutting rates in July, but our base case is that much weaker data will continue, allowing for easing in September,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a client note.
Shepardson noted that the response rate to the salary survey from private employers was just 64%, down from an average of 71% over the past decade. He speculated that small and medium-sized businesses, which feel the most pressure from higher salaries, may be slow to respond to the survey, which could explain why initial estimates are often revised downwards.
Shepherdson said Fed policymakers “will likely keep interest rates at their current high levels for the next few months. But if the labor market improves, the Fed will quickly be seen as being overly cautious and shortsighted. Thus, we continue to expect 125 basis points of easing this year, with 25 basis points of easing in sight.” [cut] It will raise interest rates by 50 basis points in September and then by 50 basis points at each of its November and December meetings.”
The CME FedWatch tool suggests futures markets see little chance of that happening: Investors’ positions on Friday gave the probability of at least 50 basis points of easing by the end of the year a 50% chance, down from 68% on Thursday.
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