Updated on June 3, 2020 10:20:33 AM EDT
The first of this morning’s two economic releases was the ADP Employment report for May at 8:15 AM ET. It raised some eyebrows as it revealed that only 2.76 million private-sector jobs were lost during the month, compared to forecasts of 9 million lost jobs. Today’s report also revised April’s number higher, adding 679,000 payrolls to the previous announcement. The data indicates that the private business part of the employment sector was not in as bad shape as expected last month. Even though this report is generally considered to be only moderately important, the huge variance from forecasts is putting noticeable pressure on bonds and mortgage rates this morning.
Aprils Factory Orders report was also released this morning, showing a decline of 13% in new orders at U.S. factories. While this is a sizable decline that points towards manufacturing sector weakness (good news for bonds and rates), it pegged expectations. That left traders to focus on the surprise ADP report, leading to this morning’s bond selling and upward move in rates.
Tomorrow brings us two more reports for the markets to digest. The one that will draw more attention is the weekly unemployment update at 8:30 AM ET, giving us more insight about the employment sector. Forecasts are calling for it to show that 1.8 million new claims for unemployment benefits were filed last week. A large number of new claims is a sign of a weak employment sector. That means the higher the number of new filings, the better the news it is for tomorrow’s mortgage rates.
Also set for release early tomorrow is revised 1st quarter Productivity and Costs data. This report measures employee output and employer costs for wages and benefits. It is also considered to be moderately important because it helps us measure wage inflation. Many analysts believe that the economy can grow with low inflationary pressures when productivity is high. Inflation is the number one nemesis of the bond market as it erodes the value of a bond’s future fixed interest payments, which causes yields and mortgage rates to move higher. Last months preliminary reading revealed a 2.5% decline in productivity due to the pandemic shutdown and a 4.8% increase in labor costs. Tomorrows update is predicted to show slight revisions. I dont think this will have much of an impact on the bond market or mortgage pricing unless it varies greatly from expectations.
©Mortgage Commentary 2020