Economy Slows

The economic data released this week pointed to slowing economic growth. Between aggressive Fed monetary policy tightening and uncertainty caused by troubles in the banking industry, consumers and businesses have tightened their belts, causing investors to reduce their outlook for future inflation. As a result, mortgage rates ended the week lower.?

The latest Employment report revealed the expected easing of tightness in the labor market. After significantly larger gains over the prior two months, the economy added just 236,000 jobs in March, very close to the consensus forecast but the smallest monthly gain since December 2020. Average hourly earnings were 4.2% higher than a year ago, down sharply from 4.6% last month and the lowest annual rate of increase since June 2021.?

The JOLTS (job openings and labor turnover rates) report remained very high by historical standards, but it hinted at looser conditions in the labor market as well. At the end of February, there were 9.9 million job openings, which was over 3 million more than in January 2020 prior to the pandemic. However, this was far below the consensus forecast and the lowest level since April 2021. Since a lower number of openings means that there is less need for companies to raise wages in order to hire enough workers, this weaker than expected data was favorable news for mortgage rates.

Two other significant economic reports released this week, from the Institute of Supply Management, also came in weaker than expected, hinting at slower economic growth. The ISM national services sector index fell to 51.2 and the ISM national manufacturing index dropped to 46.3, its lowest level since May 2020. Also positive for mortgage rates, the prices paid components of both reports declined sharply, a sign of decreased future inflationary pressures.?

Investors will continue to keep a close eye on the banking sector for signs that troubles are spreading to other institutions. They will also watch to see if Fed officials elaborate on their plans for future monetary policy. The Consumer Price Index (CPI) will be released on Wednesday. CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services. Retail Sales come out on Friday. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy.?