Economic update for the month of May and week ending June 4, 2016

U.S. job growth slows as only 38,000 new jobs added – unemployment rate drops to 4.7% – The Labor Department reported that employers added 38,000 net new jobs in May. It was the lowest number of new jobs for any month since April 2010. The number was actually better than 38,000 as the Labor Department counted 35,000 striking Verizon workers as unemployed who are now back to work. They will be added to next month’s job gains. Even with the additional 35,000, the number of new jobs was well below what experts had anticipated. Job growth averaged over 200,000 a month in 2014 and 2015. Over the past 3 months, job growth has averaged 116,000 a month. Even more surprising was that the unemployment rate fell to 4.7%, down from 5% in April, as workers left the workforce who were discouraged and gave up on finding a job. On a positive note hourly wages rose 0.2% from April and were up 2.5% from last May. 

Stocks rise on positive news – The Commerce Department raised its estimate of the first quarter U.S. Gross Domestic Product to a 0.8% annual increase from the previously reported estimate of 0.5%. The National Association of Realtors reported that U.S. pending home sales reached the highest level in a decade. Consumer confidence rebounded, and oil rose to almost $50 a barrel ending the month at $49.10 a barrel, up 6.9% from $45.92 at the end of April. The factor that seemed to hold the market down in May was the Federal Reserve minutes, which revealed that The Fed might raise their benchmark Funds Rate as early as June. The Dow Jones Industrial Average closed the month at 17,787.31, up from 17,763.64 last month. The S&P 500 closed the month at 2,096.95, up from 2,065.30 on April 30. The NASDAQ closed May 31 at 4,948.05, up from 4,775.36 at the end of April. 

For the week ending June 4, 2016 – The Dow Jones Industrial Average closed the week at 17,807.06. The S&P 500 closed at 2,099.13. The NASDAQ closed at 4,942.52.

Bond yields unchanged in May – The 10 year U.S. Treasury bond
yield closed May 31 at 1.85%, up from 1.83% last month. The 30-year U.S. Treasury bond closed at 2.63%, up from 2.66% at the end of April. Mortgage rates follow bond rates so we watch bond rates carefully.

Retail sales surge in April – The Commerce Department reported that U.S. retail sales recorded their biggest increase in a year as consumers stepped up purchases of automobiles and other goods in April. This report suggested that the economy may be gaining momentum after a disappointing first quarter. Retail sales surged 1.3% in April. It’s largest gain since March 2015. Coming just days after Macy’s and Nordstrom’s reported poor first quarter sales, this report suggests that fear of consumer spending slowing sharply may have been over exaggerated. 

Consumer sentiment rebounds in May – The University of Michigan reported that its index of consumer sentiment rose to 94.7 in May, up from 89 in April. It’s the highest reading in a year, signaling that consumers have grown more optimistic about the economy. It is thought that more confidence could bring greater economic growth, as consumers are more likely to spend. Consumer spending accounts for roughly 70% of U.S. economic activity. The economy slowed the first three months of the year as confidence dropped. Most analysts expect growth to rebound in the April to June quarter. 

Consumer spending rises – The Commerce Department reported that consumers spent more in April as consumer spending rose 1% for the month, the largest gain in seven years. The increase was the largest monthly jump since August 2009 and beat analysts’ expectations of 0.7%, as consumers bought cars and trucks and other goods.

Homes more affordable in the first quarter – The California Association of Realtors reported that housing affordability in the state improved in the first quarter. Strong wage growth, lower interest rates and leveling home prices pushes housing affordability higher. According to C.A.R. 34% of California households could afford to purchase a $465,280 median priced home. The income required to purchase a median priced home was $92,571. This was up from the fourth quarter of 2015 when only 30% of households could afford to purchase a median priced home. Condos and town-homes were even more affordable with 41% of households able to afford a condo or town-home. The income needed to purchase the median priced condo or town-home was $77,575. 

California statewide median price breaks $500,000 – The California Association of Realtors reported that the median price of a home in California rose to $509,100 in April. That represents a 5.3% month over month increase from March. 

California home re-sales fewer due to tight inventory – The California Association of Realtors also reported that the number of homes sold in April dropped 2.6% from its annualized level in March. Year over year the number of sales declined 5.4% from April 2015. The Unsold Inventory Index dropped again to a 3.5 month supply in April. A normal market is a 6.1 month supply, so inventory levels are around 60% of normal, according to CAR. This tight inventory is pushing prices higher and sales lower as buyers are again finding it tough to find homes to buy. 

U.S. pending home sales at 10 year high – The National Association of Realtors announced that April pending home sales rose for the third consecutive month. April’s 5.1% rise in pending home sales from March brings the number of homes that went under contract to the highest level in a decade. The pending home sale index is a leading indicator of housing activity. It is based on signed real estate contracts for existing single-family homes, condominiums, and co-ops. Because homes go under contract a month or two before they close the index is a leading indicator of what closed sales figures will look like in the future.

Mortgage rates slightly higher than last week – The Freddie Mac Primary Mortgage Survey released on June 2, 2016 showed that average mortgage rates from lenders surveyed for the most popular mortgage products were as follows: The 30-year fixed rate average was 3.66% The 15-year fixed average rate was 2.92%. The 5/1 ARM average rate was 2.88%.

Have a great weekend!