The Government is Back Open…So What Will the Fed Do?

Government Reopens and USDA Loans Resume

Thankful air travelers everywhere are thrilled the government reopened after the longest shutdown in history. Many people throughout the country were negatively affected by the closure. In the world of real estate finance, this means we can go back to using USDA Rural Development loans, and we can expect to see economic data released. 

September Jobs Report Likely Released Soon

The Bureau of Labor Statistics (BLS) had nearly completed the September Jobs report when the shutdown began. Based on comments from National Economic Council (NEC) Director Kevin Hassett, it is likely that the report will be released as soon as next week. The October Jobs report will take more time to populate and examine the data. 

The BLS has indicated that this report will only include the Business Survey component, although it normally contains a headline Business Survey and an unemployment rate-establishing Household Survey. The Household survey requires physically calling thousands of families for their employment status, which is not possible without a time machine. 

It is possible that the October Jobs report could be delayed further and released simultaneously with the November report, scheduled to be released on December 5. The BLS could delay that another week to allow time to complete the report. 

CPI and PCE Inflation Data Delayed

For inflation, we already received September’s CPI. The October report was scheduled to be released this week. The BLS may also cancel the October report and release it along with the November numbers that are due on December 10. For the Federal Reserve’s (Fed) favorite inflation report, the PCE, the September numbers missed the October 31 deadline and will now likely be out in late November. It is unclear when the November numbers will be released. 

Fed Lacks Fresh Data Before December Meeting

With these delays, the Fed will only have data through September and possibly some from October before their December 10 meeting. As they stated after the last meeting, a rate cut “is far from a forgone conclusion.” Fed speakers this week focused on inflation levels remaining higher than targets and the belief that jobs are stable. Data continues to contradict these beliefs. 

ADP Shows Rising Job Losses

ADP released its weekly employment data, which they have continually provided during the shutdown. For the four weeks ending October 25, there were an average of 11,250 job losses per week. This is significantly weaker than their anemic October report, which showed 42,000 gains. The second half of October showed a large number of losses, causing this number to swing from gains to losses. Take a look at this interesting chart, which displays the 3-month moving averages. It is clear that job creation has almost come to a full stop:

NFIB Index Falls on Weak Labor Demand

The National Federation of Independent Businesses (NFIB) Small Business Optimism Index fell to another low. They stated the main reason for the pessimism is weak labor market conditions. Only 15% plan to make any hires in the next 3 months. They also state that they are having trouble finding qualified workers.

Fifty-Year Mortgage Gains Little Traction

This week also saw a good deal of discussion about a possible 50-year mortgage product. This product is unlikely to find much traction, as there are significant diminishing marginal benefits associated with extending the term of a loan.  A simple example will show this:

Loan amount of $400,000. 

• 15-year Loan at 6% Principal and Interest Payment = $3375/mo
• 30-year Loan at 6.5% Principal and Interest Payment = $2528/mo
• 50-year Loan at 7% Principal and Interest Payment = $2406/mo

The savings for adding 20 years to the mortgage are extremely small and wouldn’t increase affordability. 

Looking Ahead: Upcoming Reports to Watch

As a reminder, we will get the September BLS Jobs report next week. But here are some additional reports:

• Tuesday, November 18: NAHB Housing Market Index
• Wednesday, November 19: Fed meeting minutes, 20-year Treasury Auction
• Thursday, November 20: Exiting Home Sales