Vital Statistics:

Stocks are flat after the House passed the debt-ceiling bill. Bonds and MBS are up.
Philly Fed President Patrick Harker said the Fed “really should skip, not pause,” a rate hike at the June meeting. “I’m not saying that we’re not going to continue to tighten,” Harker said, citing sticky inflation, “but I think we can take a bit of a skip for a meeting” to assess how the aggressive tightening cycle that started in March 2022 has impacted the real economy. “The Fed doesn’t have to hike at every meeting.”
This comment caused a pretty dramatic shift in the Fed Funds futures, which now see a 75% chance of a pause in June after forecasting a 75% chance of a hike a few days ago.
If the Fed pauses in June, that should hopefully suck some volatility out of the bond market, which has been elevated since the Fed started tightening last year. The MOVE Index is sort of like a VIX for bonds shows how much volatility has increased:

Since MBS spreads are a function of interest rate volatility, any decrease should be supportive, which does pave the way for lower mortgage rates going forward, especially if the 10 year yield starts working its way lower.
First quarter productivity was revised upward from -2.7% to -2.1% as employment costs were revised downward from 6.3% to 4.2%. Unit labor costs were driven by a 2.1% increase in compensation and a 2.1% decrease in productivity. While negative productivity is never a good thing for inflation, the downward revision in unit labor costs is encouraging.
Private employers added 278,000 jobs in May, according to the ADP Employment Report. Annual pay increased 6.5%. The bulk of the jobs were added in leisure / hospitality, while construction and mining increased as well. We saw decreases in manufacturing and all of the white collar categories. “This is the second month we’ve seen a full percentage point decline in pay growth for job changers,” said Nela Richardson, chief economist, ADP. “Pay growth is slowing substantially, and wage-driven inflation may be less of a concern for the economy despite robust hiring.”
The manufacturing economy contracted for the 7th straight month, according to the ISM Manufacturing Report. The U.S. manufacturing sector shrank again, with the Manufacturing PMI® losing a bit of ground compared to the previous month, indicating a faster rate of contraction. The May composite index reading reflects companies continuing to manage outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period. However, there is clearly more business uncertainty in May.”
On the plus side, any supply chain issues from COVID appear to be long gone.