Last week began with housing and rate friendly news from Treasury Secretary Bessent. We saw important employment reports from both ADP (only private sector) and Bureau of Labor Statistics (BLS) Non-Farm Payrolls (Jobs). Neither report was strong, which helped to keep interest rates down throughout the week. The week ended with a speech from Federal Reserve (Fed) Chairman Jerome Powell that took away some of the rate benefits we saw from the BLS Jobs report.

Treasury Secretary Bessent Predicts Lower Rates and Market Recovery

Secretary Bessent was interviewed and appeared optimistic on housing, rates, and the economy in general. He confirmed the Fed’s repeated statement that he sees the US achieving the 2% inflation goal, attributing it to oil/energy policies and reductions in deficit spending (spending by the government more than it brings in). His expectation is that the US 10-year Treasury yield will decline along with the spread (difference between) that yield and mortgage rates. 

He surprisingly said that he expects to see housing “unfreeze in a few weeks.”  Much of housing sales are considered “frozen” because owners can’t sell due to their much lower mortgage rates vs the current market. 

He stated expectations of GDP growth despite March 4th changes to the Atlanta Fed’s Q1 2025 GDP set at negative 2.8%. On February 14^th, it was forecasted at positive 2.3%, over a 5% shift. This is likely due to the uncertainty surrounding tariffs and their implementation (or not).  He also explained that the market and the economy have become “hooked and addicted” to government spending and that there will be a detox period. Bad economic news if generally good for interest rates.

ADP Employment Report Shows Weak Job Growth

ADP, one of the largest payroll companies in the US, came out with its February Employment Report. It showed that 77,000 private-sector jobs (not including government) were created. This was lower than the 140,000 expected. They also revised their 2024 total number down by 215,000. Wage changes for both job switchers and job stayers showed either flat or declining growth. This is good news for inflation and helped mortgage rates.

Challenger Job Cuts and Beige Book Reports Indicate Economic Slowdown

The Challenger Job Cuts Report showed 172,017 job cuts were announced in February, the highest total for February since 2009 and the most in a month since July of 2020. 

The Fed’s Beige Book, which assesses the general health of each of the Fed’s 12 districts, confirmed lower consumer spending, vehicle sales, and construction activity.

BLS Jobs Report Shows Weak Job Market

The important BLS Jobs report for February rounded out the week, showing weakness on many fronts.  The Business Survey’s Headline number showed that 151,000 jobs were created, fewer than the estimated 170,000.  As we have discussed in previous weeks, the Headline number uses the Birth/Death Model to project small business job growth.  It added 136,000 jobs to this number. 

By contrast, ADP’s small business component showed 12,000 jobs lost for the same month. It is highly probable that this Headline number will be revised lower significantly, or we will see that the “true” QCEW number, which comes out later this year, will show a much lower number as we have seen in the past couple QCEW reports. 

Household Survey Reflects Significant Job Losses

The Household Survey showed 588,000 job losses. Due to a reduction of 385,000 in the labor force, the unemployment rate (U-3) rose to 4.1% from 4.0%. If there hadn’t been a reduction of eligible job seekers by 385,000, the rate would have been 4.4%.  The more accurate U-6 rate, which includes individuals seeking a job or who are underemployed (part-time or gig jobs but wanting full-time employment), showed a huge jump to 8% from 7.5%. This is now the highest level since October 2021.  

Realizing 588,000 job losses is very concerning, but when we dig a little deeper, it gets worse: 1.2 million full-time jobs were lost, and 610,000 part-time jobs were gained.  The only job gains were in people aged 16-19.

Powell Tempers Rate Cut Expectations

Fed Chairman Powell threw a little cold water on the drop in rates caused by the BLS report.  He said that the Fed is awaiting “greater clarity” on Trump administration policies before making next moves. The Fed is “separating the signal from the noise” in the current political climate. Powell indicated that he was not worried about the economy amid the tariff wars.  He explained that there is no need to hurry to consider rate cuts.  

Looking Ahead: Key Inflation Reports This Week

This week is inflation week again, with important economic data releases:

Tuesday, March 11: 

• NFIB Small Business Optimism Index
• JOLTS (Job Openings and Labor Turnovers)

Wednesday, March 12: 

• Consumer Price Index (CPI inflation report)
• 10-Year Treasury Auction

Thursday, March 13: 

• Producer Price Index (PPI wholesale inflation report)
• 30-Year Treasury Auction

Hopefully we can continue to see rates improve next week!