Economic update for the week ending February 3, 2023

Stock markets closed higher again this week -?The 2023 stock rally continued again this week. Investors are feeling that inflation is going to continue to tame and that the Fed will soon end their interest rate hikes. The Fed did increase their key rates by??% this week, their smallest interest rate increase since they began their aggressive pace of rate increases almost a year ago. That signaled that they were getting close to leveling off rates at their current levels. The fourth-quarter GDP (Gross Domestic Product) preliminary estimate showed that the economy grew at a healthy 2.9% from one year earlier. After the most aggressive interest rate hikes and other tightening measures by the Federal Reserve in forty years, that came as a surprise. So far, fears of a recession have not materialized and the economy continues to grow. On Friday, the January jobs report was released showing a surge in hiring. While good news, that got investors a little nervous about what the Fed will do to try to slow such a heated economy. Stocks took a pause and home mortgage interest rates moved higher from their six-month lows on Thursday.?

• The Dow Jones Industrial Average closed the week at 33,926.01, down 0.2% from?33,979.08 last week.?It is up 2.4% year-to-date.?
• The S&P 500 closed the week at 4,136.48, up 2.5% from?4,070.56 last week. It is up 7.7% year-to-date.?
• The NASDAQ closed the week at 12,006.96, up 3.3%?from 11,621.71 last week.?It is up 14.7% year-to-date.

?U.S. Treasury bond yields?- The 10-year treasury bond closed the?week yielding 3.53%, unchanged?from 3.52% last week.?The 30-year treasury bond yield ended the week at 3.63% unchanged?from 3.64% last week. We watch bond yields because mortgage rates follow bond yields.?

?Mortgage rates?–?The?Freddie Mac Primary Mortgage Survey?reported that mortgage rates for the most popular loan products as of February 2, 2023, were as follows:?The 30-year fixed mortgage rate was 6.09%, down?from 6.13% last week.?The 15-year fixed was 5.14%, down?from 5.17% last week.?

?Job growth unexpectedly surged in January - The unemployment rate dropped to 3.4%, its lowest level since 1969 - The Department of Labor and Statistics?reported that?517,000 net new full-time jobs?were added in January. That was?three times the number of new jobs?analysts expected!?This took investors by surprise because the Federal Reserve has embarked on the most aggressive interest rate hikes and other measures to cool the economy for forty years. The Fed's goal is to slow consumer spending to bring down the rate of inflation. When borrowing costs increase, companies have traditionally cut back on the number of workers. That has not been the case in this cycle. We have seen layoffs in technology, but those workers got jobs quickly in other sectors. The number of advertised jobs compared to the number of people looking for a job increased in January. There are about two open jobs for every worker looking for work. Until the job market cools and people become worried about keeping their jobs or finding work, there is little chance of them cutting back on spending. The?labor-force participation rate?(the share of workers with a job?or actively looking for a job) was 62.4% in January up slightly from 62.3% in December. It was at 63.4% before the pandemic. Average hourly?wages?increased by 4.4% from one year ago.?

Have a great weekend!