Market Updates

• Two-year Treasury notes increased five basis points last week as the unemployment rate dropped 0.2% to a 49-year low of 3.6%. The growth in non-farm payrolls registered a gain of 263 thousand which was larger than the expected gain of 190 thousand. April’s increase in jobs extended the record stretch of job gains to 103 consecutive months and is on pace to top 2 million for the ninth year in a row, also a record.

• The drop in the unemployment rate was not all positive as the number of unemployed workers declined by 387 thousand, but the labor force fell an even larger 490 thousand. More people dropped out of the labor force than obtained jobs, which drove the unemployment rate lower. The labor force participation rate also declined from a rate of 63% to 62.8%.

• Growth in earnings has stalled out over the last six months at a moderate pace of 3.2%. The stall in earnings may be due to the relatively large shadow workforce that provides labor slack that companies can access. Growth in productivity in the first quarter and moderate wage increases have helped to drive down unit labor costs this year.

• The FOMC minutes were released on Wednesday, and Chairman Powell dismissed the recent slowdown in inflation as transitory. The statement took away some of the momentum from investors anticipating a near term ease as the Fed exercises more patience with lower inflationary data.