Service Sector Shines
The growth and inflation data released this week was stronger than expected nearly across the board. Despite this, however, mortgage rates ended the week a little lower.
The most significant economic report this week exceeded expectations by a considerable amount. The ISM national services index jumped from 55 to 64, far above the consensus forecast of 59, and the highest level ever recorded. The service sector accounts for more than 75% of U.S. economic activity, and readings above 50 indicate that it is expanding.
Last week's key Employment data revealed that companies are hiring back workers let go due to the pandemic even more quickly than anticipated, and Tuesday's JOLTS report also pointed to exceptional strength in the labor market. At the end of February, job openings jumped to 7.4 million, well above the consensus forecast, and the most since January 2019. Unfilled positions reflect increased demand for more workers, a sign of tightness in the labor market.
The reduced economic activity resulting from the pandemic has caused a decline in inflation, which has been one of the factors responsible for record low mortgage rates. With the vaccine rollout moving forward and the economy reopening, investors are now worried that inflation may be heading higher, and this week's data amplified those concerns. The Producer Price Index (PPI) is a widely followed monthly inflation report that looks at the price change for raw materials and intermediate goods used to make final products. In March, PPI jumped 1.0% from February, far above the consensus forecast of 0.5%, and it was 4.2% higher than a year ago, the highest annual rate of increase since 2011.
Looking ahead, investors will continue watching Covid case counts and vaccine distribution. Beyond that, the Consumer Price Index (CPI) will come out on Tuesday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. Retail Sales will be released on Thursday. Since consumer spending accounts for over two-thirds of all economic activity in the US, the retail sales data is a key indicator of growth. Housing Starts will come out on Thursday and Existing Home Sales on Friday. Housing Starts will come out on Friday.
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