Christmas in July!

Welcome to another edition of Sunrise Economix, where I’m sharing the freshest updates from the housing market, peppered with exclusive insights and valuable information tailored just for you.

This week has been a wonderful week to watch interest rates decline. It very well could be the start of the much delayed and much anticipated downward drop in interest rates to a more market “normalized” range. This week continued the downward trend in rates that we saw last week.

It was relatively calm Monday. Tuesday saw the JOLTS (Job Openings and Labor Turnover) data that was an indication of the Jobs market. Wednesday gave us June’s ADP employment report and the Federal Reserve (Fed) meeting results. Thursday had a terrible weekly Jobless Claims report. Friday saw the all-important Bureau of Labor Statistics (BLS) Jobs report.

Tuesday’s June JOLTS data showed that job openings are still above pre-pandemic levels at about 8.18M. This data is predominately gathered from Job postings around the country. We should step back and consider, though, that job postings are very different now than pre-pandemic. Employees can work from virtually anywhere, so employers are duplicating the same job postings in different markets to try to increase their chances of snagging the perfect employee. Some economists feel these job postings are overstated by about 1.4 million jobs, which would bring the total level of job openings to below pre-pandemic levels.  

The JOLTS report also let us know that the hiring rate fell to 3.4%, the slowest since 2013, not including COVID. Remember, the low during COVID was 3.1%, so we aren’t that far off. The Quit rate was 2.1% and was unchanged from the prior month. This is the lowest level since 2018, when excluding COVID. This rate is important as it shows a weakness in the labor market. The lower Quit rate indicates that less people are confident in their ability to get a new job, so they stay at their current job.

ADP is one of the nations largest payroll services. As such, they have a unique insight into what is happening in non-Government jobs. ADP’s report showed 122,000 jobs were created, which was weaker than the 150,000 expected. All the hiring took place in businesses with 50+ employees. Their report also showed that wage growth slowed which is good for inflation and supports what the Fed has been trying to accomplish.  

The Federal Reserve Open Market Committee (FOMC) meeting wrapped up Wednesday, and the press conference that followed with Chairman Powell made the rate markets very happy. While the market didn’t expect any rate cuts, and the Fed fulfilled that expectation, they made it an almost certainty that we will see cuts in September at the next meeting. The market is currently pricing in 3 rate cuts for the rest of the year. They even confirmed that rate cuts will be a “process” rather than a single cut and done.  

Initial Jobless Claims rose by 14,000 to 249,000, the highest level in a year. The market was expecting 235,000. Continuing Jobless Claims rose 33,000 to 1.88M, the highest level in almost 3 years. Remember that you can only receive unemployment benefits for 6-9 months. This figure is likely undercounting people as they aren’t counted if their benefits expire.  

The July BLS Jobs report finally is showing the true colors of the US labor market. This is pushing rates down and solidifying the future Fed rate cuts. As a reminder, there are two different reports contained in the BLS Jobs report: the Business Survey, which uses modeling to determine employment changes, and the Household Survey, which sees Government employees physically calling households to ask about their employment status. The Business Survey gives us the headline number for the report, while the Household Survey gives us the unemployment rate.

The headline reported that only 114,000 jobs were created in July. This was much lower than the expectations of 185,000. As has become usual, they also revised the previous 2 months lower by 29,000 jobs. This month ADP claimed small businesses (under 50 employees) lost 7,000 jobs, but the BLS’s Birth/Death model added 246,000 jobs. Despite this huge number from modeling small businesses, the rest of the economy lost jobs, which led to the 114,000 headline number. We can expect this to be revised even lower once the Birth/Death model comes back to reality. Two-thirds of the job gains came from Healthcare, Education, and Government. These sectors are isolated from the well-being of the economy. Other sectors fared much worse and are indicative of the deterioration of the general labor market.  

The Household Survey showed that there were only 67,000 job gains. There was an increase in the labor force of 420,000. These two metrics caused the unemployment rate to increase from 4.1% to 4.3%. This rate is called the U-3 unemployment rate. It doesn’t include people who want a job but are unable to find one. It only includes people who are actively looking for a job. The U-6 unemployment rate includes all people who want employment. The U-6 went from 7.4% to 7.8% and is a more accurate picture of unemployment in our country.  

One final piece of information contained in the BLS Jobs report that is really indicative of the health of our economy is their analysis of part-time jobs. They asked people if they were working part-time jobs for economic reasons (meaning to pay the bills) and this number increased to 346,000. They also found that 51,000 workers were ONLY able to find part-time work and not any full-time employment.

All of this economic data has pushed mortgage rates down to levels we briefly touched at the end of December 2023 but really didn’t see for any length of time since late Spring 2023. The 10-year US Treasury yields are typically 2% less than mortgage rates. They have declined in the last month from about 4.5% to 3.81%. This is a massive decline in a short period of time. This is very welcome news and will help to spur the housing market and home affordability. It really feels like Christmas in July!

This said, I do want to remind readers that the welcome low rates are a product of bad economic news. The statistics that I write about each week reflect real people with real families. There is a lot of economic pain out there, and it is far from being over. We can be thankful for a welcome relief after several years of high rates but let’s not forget people are going through tough times.

Looking Ahead:

Next week is a much lighter fare of economic releases. This means the technical indicators will predominantly move interest rates.  

• Monday: ISM Non-Manufacturing Index
• Thursday: Weekly Jobless Claims