Employers added 272,000 jobs in May, far exceeding economists’ consensus expectations for a 180,000 job gain and the 232,000 average over the past year.
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A surprisingly strong jobs report sent mortgage rates rebounding on Friday, erasing much of the improvement potential homebuyers saw this week.
Employers added 272,000 jobs in May, compared with an average of 232,000 jobs added last year and well ahead of economists’ consensus forecast for a 180,000 job gain.
The U.S. Bureau of Labor Statistics reported that the unemployment rate and the number of unemployed people (6.6 million people) were 4.0%, little changed from April but up from 3.7% and 6.1 million people a year ago.
Treasury yields soar
Source: Yahoo Finance.
The 10-year U.S. Treasury yield, a barometer of mortgage rates, surged 15 basis points on Friday to as high as 4.43%, erasing most of this week’s losses. A basis point is one hundredth of a percentage point.
CME Group’s FedWatch tool, which tracks futures markets to gauge the likelihood of the Fed’s next move, showed investors who fund most mortgages are now less certain the Fed will cut interest rates in September.
On Thursday, investors put a 69% chance that the Fed would cut interest rates one or more times before September 18.
Ahead of Friday’s jobs report, mortgage rates have fallen for six straight days after a flurry of data starting on May 30 seemed to point to an economic slowdown and an impending rate cut from the Federal Reserve.
Mortgage rates trend downward
Mortgage rate locks tracked by Optimal Blue showed the average interest rate on a 30-year fixed-rate conforming mortgage was 6.88% Thursday, down 39 basis points from the 2024 high of 7.27% recorded on April 25.
Optimal Blue data lags a day, but an index compiled by Mortgage News Daily showed 30-year fixed-rate mortgage rates surged 12 basis points on Friday, in line with 10-year Treasury yields.
Economists at Pantheon Macroeconomics still expect the Fed to cut short-term interest rates by 1.25 percentage points this year, saying nonfarm payrolls surprises tend to be revised and most indicators point to a summer slowdown.
Ian Shepherdson
“These data remove any possibility of a rate cut by the Fed in July, but our base case remains that a series of weak data is on the horizon, which could lead to a lower interest rate,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients. Easing policy can be implemented in September.
Shepherdson noted that the private employer response rate to the salary survey was just 64%, down from the 71% average over the past 10 years. He speculated that small businesses, which feel the most pressure from high interest rates, may respond later to the survey, which could explain why initial estimates are often revised downwards.
Shepherdson predicted that Fed policymakers “will keep interest rates at their current high levels for several months.” But when the labor market shifts, the Fed can quickly appear overly cautious and short-sighted. Therefore, we continue to seek 125 basis points of easing this year, with 25 basis points [cut] at the September meeting, followed by 50 basis point hikes at the November and December meetings.
The CME Group’s Federal Watch Tool shows that futures markets view this scenario as highly unlikely. Investors held positions on Friday that saw a 50% chance of at least 50 basis points of easing before the end of the year, down from 68% on Thursday.
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