Economic update for the week ending May 5, 2018:
April unemployment rate lowest since 2000 - The Department of Labor Statistics reported that U.S. employers added 164,000 new jobs in April. That was a little below the 190,000 that analysts expected. The unemployment rate dropped to 3.9%, an 18 year low. The unemployment rate has steady declined from its peak of 10% in 2009. Average hourly wages grew just 2.6% from April 2017. This was the most anticipated part of the report. Wage growth has been stagnant, which is unexpected. Usually when the unemployment rate drops there is more competition for workers and wages rise. That has not happened at the rate expected over the last 9 years. In January wages finally began showing signs of rising when year over year wage growth came in at 2.9% which surpassed analysts. Interest rates began to rise because experts felt that higher wages would give people more spending power and lead to higher inflation. Higher inflation causes interest rates to rise. Stocks slipped because higher wages raise corporate labor costs, and higher interest rates raise their borrowing costs, which lowers profits. It is beginning to appear that January’s wage gain of 2.9% may have been an atypical result, as February and March numbers showed that wages grew 2.7% and April is now back to a 2.6% year over year wage gain.
Stocks end week mixed in another turbulent week of trading - Despite a rally on Friday where the DOW gained 332 points, stocks finished the week mixed. Companies reported strong third quarter earnings, but gave more cautious guidance on future profit increases. Companies expressed more caution because of increased costs of steel and aluminum due to tariffs, increased energy costs (oil prices have increased dramatically), higher interest rates and borrowing costs, and higher wages and labor costs. Friday’s jobs report revealed that wage increases are back to the levels we saw in 2016 and 2017, and not the wage increase levels we had seen at the beginning of 2018, which investors feel will lower pressure on interest rates increases. Stocks rose sharply on Friday after the jobs report was released. The Dow Jones Industrial Average closed the week at 24,262.51, down from last week’s close of 24,311.19. It is down 1.8% year to date. The S&P 500 closed the week at 2,663.42, almost unchanged from 2,669.91 last week. It's down 0.4% year to date. The NASDAQ closed at 7,209.62, up from 7,119.80 last week. It is up 4:4% year to date.
Treasury Bond yields higher this week - The 10 year treasury bond closed the week yielding 2.95% almost unchanged from 2.96% last week.The 30-year treasury bond yield ended the week at 3.12%, slightly downfrom 3.14% last week.
Mortgage Rates slightly lower this week - The May 3, 2018 Freddie Mac Primary Mortgage Survey reported that the 30 year fixed mortgage rate average was 4.55%, down slightly from last week’s 4.58%. The 15 year fixed was 4.03%, almost unchanged from 4.02% last week. The 5-year ARM was 3.69%, down from 3.74% last week. Rates were slightly lower in Friday so next week’s rates could be slightly lower.
California’s GDP figures makes it the worlds fifth largest economy - Data released by the Commerce Department showed that California’s GDP exceeded $2.7 trillion in 2017. Only the United States, China, Japan, and Germany surpassed the economic output of California.