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Economic update for the week ending August 6, 2022

The U.S. economy added 528,000 new jobs in July – The Department of Labor and Statistics reported that 528,000 new jobs were added in July. This massive number of new jobs created was over double the 250,000 new jobs that analysts had expected! The unemployment rate dropped to 3.5%, a52-year low. The labor-force participation rate (the share of workers with a job or actively looking for a job) was 62.1% in July, its third consecutive monthly decline. It is well below the 63.6% level before the pandemic. Average hourly wages increased 5.2% from one year ago. While such a strong jobs report is good news, it puts more pressure on inflation. Due to strong job growth and such low unemployment, the country is experiencing a labor shortage that is forcing wages higher. More people working and higher wages increases consumer spending,which drives prices up. This report was not in line with what the Federal Reserve had hoped. The goal of the Fed is to slow the economy to lower spending and reduce inflation. When the Fed increases interest rates borrowing costs to business increase. Increased bowering costs lower profits and historically cause companies to scale back on hiring. This has not been the case over the past several months. This report will probably cause the Fed to be even more aggressive with interest rate increases in order to cool the jobs market.

Stock markets ended the week slightly higher – Stocks ended the week mixed with the S&P and Dow almost unchanged and the NASDAQ up over 2%. The Dow Jones Industrial Average closed the week at 32,803.47, down 0.1% from 32,845.I4 last week. It is down 9.7% year-to-date. The S&P 500 closed the week at 4,145.19, up 0.4% from 4,130.29 last week. The S&P is down 13% year-to-date. The NASDAQ closed the week at 12,657.56, up 2.1% from 12,390.69 last week. It is down 19.1% year-to-date.

U.S. Treasury bond yields higher this week – The 10-year treasury bond closed the week yielding 2.83%, up from 2.67% last week. The 30-year treasury bond yield ended the week at 3.06%, up from 3.0% last week. We watch bond yields because mortgage rates often follow treasury bond yields. Unfortunately, on Friday after the release of the July job report yields jumped higher.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of August 4, 2022, for the most popular loan products were as follows: The 30-year fixed mortgage rate was 4.99%, down from 5.30% last week. The 15-year fixed was 4.26%, down from 4.58% last week. The 5-year ARM was 4.25%, down from 4.29% last week. While everyone was encouraged that the 30-year dropped under 5% for the first time in three months, rates rose back up about 1/4% after the jobs report was announced.

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