Global Growth Outlook Downgraded

While global financial markets have been driven mostly by central bank policy in recent weeks, the pace of global economic growth reemerged as a focus for investors. Signs of slower global growth were positive for mortgage rates. Friday’s important employment data caused some volatility, but it had little net impact. As a result, mortgage rates ended the week lower.

Recent releases in two key regions increased concerns about their prospects for economic growth. First, the European Commission, the executive body of the European Union, cut its growth forecast for the eurozone for 2016 and 2017. In addition, China’s PMI manufacturing index fell more than expected to a level which suggests that the sector is contracting. This took place despite significant stimulus efforts by Chinese leaders, casting doubt about the government’s ability to limit the decline in the growth rate of the world’s second-largest economy. Slower growth reduces expectations for future global inflation. Since mortgage rates are set based on the outlook for inflation, these two events were positive for mortgage rates.

The employment data was slightly weaker than expected overall. The consensus was for an increase of 200,000 jobs in April, but the economy fell short by 59,000, including revisions. Average hourly earnings, which are an indicator of wage growth, were 2.5% higher than a year ago. Investors viewed the shortfall in job gains and the strength in the wage data as close to a wash, and the report caused little change in mortgage rates.

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