Unemployment Rate Plunges

The major economic data released this week was stronger than expected, but its impact on mortgage markets was minimal. Rates again ended the week little changed near record low levels.

The big surprise was the shocking drop in the unemployment rate. From a level of 10.2% last month, it plunged to 8.4%, which was far below the consensus forecast of 9.8%. In terms of progress on the recovery, this was down from nearly 15% in April, but still well above the rate of just 3.5% in February. The data on job gains comes from actual figures provided by large companies, while the unemployment rate is based on a household survey conducted by the Labor Department. 

Two other major reports released this week also reflected the swifter than expected pace of the economic recovery. The ISM national manufacturing index increased to 56.0, the highest level since November 2018, while the ISM national services index was even stronger at 56.9. Both indexes had dropped to levels between 40 and 45 a few months ago after the partial shutdown of the economy. Readings above 50 indicate an expansion in the sector.

Looking ahead, investors will continue watching for news about medical advances, government stimulus programs, Fed monetary policy changes, and plans for reopening the economy. Beyond that, it will be a light week for economic data. The Consumer Price Index (CPI) will come out on Friday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. The next European Central Bank meeting will take place on Thursday. Mortgage markets will be closed on Monday in observance of Labor Day.