Market Update: Rates Trend Lower Despite Strong Payroll Numbers from the Employment Situation

Blog posted On June 05, 2023

Is the labor market strong or not? Recently, the employment situation reports have been the pulse of the economy. But last week’s jobs data from May made it difficult to tell. On one hand, nonfarm payrolls and private payrolls greatly outperformed – indicating labor market strength. On the other hand, the unemployment rate ticked up, average hourly earnings declined, and the workweek was cut shorter – all signs of labor market weakness. As we know, a stronger economy generally leads to a weaker bond market and higher rates and vice versa. So how did the bond market react to the data?

Basically, the two conflicting sets of jobs data semi cancelled each other out. Earlier in the week, rates were trending lower due to bond market movement. The reports on Friday neither reversed the rate progress nor continued the downward trend. Though rates inched up slightly, the movement wasn’t enough to impact the broader weekly trend. Here’s a look at the employment numbers of discussion:

Signs of weakness

  • Unemployment rate: 3.4% (Apr) ? 3.7% (May)
  • Average hourly earnings: 0.4% (Apr) to 0.3% (May)
  • Average workweek: 34.4 (Apr) to 34.2 (May)

Signs of strength

  • Nonfarm payrolls: 294,000 (Apr) to 339,000 (May) vs. 180,000 expected
  • Private payrolls: 253,000 (Apr) to 283,000 (May) vs. 160,000 expected

The Federal Reserve has been keeping a close watch on the labor reports, eagerly hoping for signs of weakness. We’ll hear from them next week at the Fed announcement on June 14th.

Several Fed officials have referenced a possible “skip” in rate hikes. “A skip is as good as a pause for financial markets, and a pause is the precursor to lower rates,” explains Matthew Graham, COO of Mortgage News Daily.

This week is relatively quiet in terms of market moving reports, but we’ll keep you updated on any important news! Reach out if you have any questions about what the recent rate movement means for you.


Sources: Bloomberg, Mortgage News Daily, Mortgage News Daily