Inflation Climbs

Reports of progress to end the conflict in the Middle East continued to be the primary influence for mortgage markets, while the economic data caused little reaction. As a result, mortgage rates ended the week lower. 

One consequence of higher prices for everyday items such as gasoline, groceries, and utilities is that consumers are saving less. The personal savings rate (the share of income Americans have after taxes and expenses) dropped to just 2.6% in April. This was down from 5.8% a year ago and the lowest level since June 2022 during the reopening of the economy after the pandemic. With the boost to incomes from larger tax refunds this year beginning to fade, investors will be keeping a close eye on the spending habits of consumers. 

The latest confidence survey published by the Conference Board revealed that consumers remain worried about higher prices, the labor market, and geopolitical tensions. In May, the index dropped to 93.1 from 93.8 in the prior month. The decline was sharpest for lower-income households, for whom higher gasoline prices are eating up a greater share of their budgets. Two-thirds of consumers reported a reduction in spending by cutting back on discretionary items or delaying expensive purchases. Also notable, the share of respondents viewing jobs as not plentiful rose to the highest level since 2021. 

Looking ahead, attention will remain fixed on the conflict in the Middle East. Investors also will monitor comments from Fed officials about future monetary policy. For economic data, The ISM national manufacturing sector index will be released on Monday and the services sector index on Wednesday. JOLTS will come out on Tuesday. The key Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation are always closely watched.