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On Friday, the U.S. Bureau of Labor Statistics reported that employers added fewer jobs in April and May than previously expected, and private-sector hiring was sluggish in June, pushing mortgage rates back down.
Interest rates are trending downward again this week after surging after the June 27 presidential debate, as investors in the bond market, which funds most mortgages, grow increasingly confident the Federal Reserve will cut interest rates in September.
Mike Fratantoni, chief economist at the Mortgage Bankers Association, said in a statement that while employers estimated they added 206,000 nonfarm payrolls in June, about 16,000 more than forecasters expected, government hiring accounted for one-third of the increase. More than one.
Mike Fratantoni
Fratantoni noted that job growth slowed to 177,000 jobs per month in the second quarter, compared with 220,000 a year earlier, as previous estimates for job creation in April and May were revised down by 111,000 jobs.
“Beyond the headline, other aspects of the data suggest the job market is slowing,” Fratantoni said. “The unemployment rate rose to 4.1%. Twelve-month wage growth slowed again to 3.9%, with temporary employment actually falling by 49,000, suggesting business demand for labor is falling.
Wage growth continues to slow
Pantheon Macroeconomics chief economist Ian Shepherdson described wage adjustments in April and May as “massive” in a note to clients on Friday.
Private employment, excluding private education and health care, rose by just 54,000 in June, “well below the previous six-month average” of 101,000, and could further ease in the coming months, Shepherdson said. slow.
Ian Shepherdson
“We still expect total employment growth to fall below 100,000 by the end of the third quarter and believe investors are severely underestimating how quickly the Fed will shift to rate cuts,” he said.
Forecasters at Pantheon Macroeconomics expect the Fed to cut interest rates by 1.25 percentage points this year, starting with a 25-basis-point cut in the federal funds rate in September and a further 50-basis-point cut at the November and December meetings.
Futures markets tracked by CME’s FedWatch tool show investors are increasingly certain the Fed will begin cutting interest rates in September, but most do not expect rates to fall by more than half a percentage point this year.
The CME Group’s FedWatch tool raised the probability of a rate cut in September to 78% on Friday, up from 74% on Wednesday and 64% on June 28. . A basis point is one hundredth of a percentage point.
“Historically, this is still a tight job market,” Fratantoni said. “However, the job market is weakening relative to recent data. Inflation data that point to further rate cuts in the coming months will be the most important evidence that the Fed needs to cut rates in September. Once you read below the headline, Current job market data points in this direction.
The 10-year Treasury yield, which typically signals the direction of mortgage rates, fell 7 basis points on Friday.
Ratings return to pre-debate levels
Source: Yahoo Finance.
On Friday, the 10-year U.S. Treasury yield returned to roughly where it was before the June 27 post-presidential debate surge, at 4.28%.
With long-term Treasury yields surging to nearly 4.5% after President Joe Biden’s poor performance in post-debate polls, bond market investors weighed the prospect that inflation could flare up again under a second administration of Donald Trump.
Mortgage rate easing
After hovering at 7% on Monday, 30-year fixed-rate mortgage rates have been falling back to an average of 6.96% on Wednesday, according to rate lock data tracked by Optimal Blue. After hitting a 2024 low of 6.50% on February 1, the 30-year fixed-rate loan rate climbed to 7.27% on April 25 due to concerns that progress in curbing inflation had stalled.
Optimal Blue data lags a day, but a Mortgage News Daily (MND) survey showed 30-year fixed-rate mortgage rates fell for a third straight day on Friday, following the July 4 holiday.
MND data shows that 30-year fixed-rate loan rates rose 9 basis points in the two days following last week’s presidential debate, but have since fallen a total of 11 basis points on Tuesday, Wednesday and Friday.
Fed policymakers have been saying they want to see more evidence that inflation is slowing before cutting rates. The Fed’s preferred inflation gauge – the personal consumption expenditures (PCE) price index – deviated from the Fed’s 2% target in February and March 2024.
However, the latest PCE index released on June 28 showed that the annual inflation rate dropped for the second consecutive month in May to 2.56%.
Other recent reports showing inflation is easing include:
- A report from the Institute for Supply Management (ISM) showed that the manufacturing industry contracted for the 19th time in 20 months in June, and the service industry contracted by 5 percentage points from May to June.
- The U.S. Department of Labor reported on Wednesday that initial jobless claims rose by 4,000 to 238,000 in the week ended June 29. In the week ending June 8, initial jobless claims surged above 240,000 for the first time since August 2023.
Commenting on his views, Shepherdson said: “Trends in jobless claims have continued to worsen in recent weeks, indicators of hiring and hiring intentions remain subdued, job vacancies are back to pre-COVID levels, and households are more worried about the unemployment rate. will rise. “Extremely high real interest rates, coupled with slowing sales growth, will force more companies to reduce employee costs in the coming months. “
Many in the real estate industry are praying for mortgage rates to drop.
MBA Lenders’ weekly survey showed that homebuyer demand for purchase mortgages fell 3% in the week ended June 28 from the previous week and was down 12% from the same period last year.
Although the number of homeowners feeling the “lock-in effect” of rising interest rates is slowly declining, three-quarters of homeowners still have mortgage rates below 5%, according to the July 2024 ICE Mortgage Monitor Report.
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