Market Commentary

Updated on May 2, 2024 10:12:29 AM EDT

We got three moderately important economic reports this morning. 1st Quarter Productivity and Costs data was posted at 8:30 AM ET, revealing worker output fell short of expectations during the first three months of the year. The productivity reading was up only 0.3% when it was predicted to rise 1.0%. This is one of the few economic indicators that higher numbers are good news for bonds and mortgage rates. Furthermore, the labor costs reading in the report rose much more than expected (up 4.7% vs 3.0%), making the data bad news for rates.

Last week’s unemployment figures were also released early this morning. They showed 208,000 new claims for benefits were made, matching the previous week’s revised number of initial filings. Forecasts had an increase in claims, hinting the employment sector held steady instead of weakening slightly. Since the number fell short of expectations, we are labeling it neutral to just a tad negative for rates.

The final piece of relevant economic news this morning was Marchs Factory Orders report at 10:00 AM ET that revealed a 1.6% rise in new orders at U.S. factories. This shows some strength in manufacturing, but did not come as a surprise to traders. Since this pegged forecasts and a good portion of the data was covered in last week’s Durable Good Orders report, we have not seen a reaction to the news.

Tomorrow brings us another major event- the release of April’s governmental Employment report. It is expected to show the U.S. unemployment rate held at March’s 3.8% last month while approximately 240,000 new jobs were added to the economy. Average hourly earnings, a key wage-inflation indicator, are expected to have risen 0.3%. A higher unemployment rate and a much smaller increase in the payroll and earnings numbers would be good news for bonds and rates because they would point to weaker than thought conditions in the employment sector of the economy. Stronger than expected results will probably lead to bond selling, possibly causing a sizable increase in mortgage pricing tomorrow.