Job Market Insights and Mortgage Rate Outlook

Welcome to our comprehensive review of the week of July 3, 2023, where we'll dive into key developments that influenced the markets. From job market reports to the Federal Reserve's latest meeting minutes, we'll analyze the significant factors shaping the economy. Additionally, we'll provide an outlook for this week's mortgage rates, giving you valuable insights to navigate the ever-changing housing market landscape. Let's delve into the details:


Job Numbers Powered by Part-time Workers

The Bureau of Labor Statistics (BLS) released its report on job numbers for June, painting a nuanced picture of the labor market. While the headline job growth of 209,000 fell short of expectations, it's crucial to examine the underlying dynamics. The Business Survey, which generates the headline job number, relies heavily on modeling and estimations. In contrast, the Household Survey, responsible for the unemployment rate, provides more real-time data by surveying households directly.

The Household Survey revealed 273,000 job creations in June. However, the survey has shown negative job growth over the past two months, with May reporting 310,000 job losses. Additionally, notable increases were observed in multiple job holders, individuals working part-time due to economic reasons, and those struggling to find full-time employment. These indicators suggest underlying weaknesses in the job market and the broader economy.


What Caused the Surge in June's Private Payrolls?

Contrary to the overall job growth figures, the ADP Employment Report unveiled a surge in private payrolls for June. With 497,000 jobs created, annual pay for job stayers increased by 6.4%, while job changers saw an average increase of 11.2%. Notably, the leisure and hospitality sector emerged as the leader, adding 232,000 jobs, more than double the growth observed in any other industry sector. The construction industry followed suit with 97,000 new jobs, reflecting growing confidence among home builders as they meet the surging demand from buyers.

However, caution is warranted regarding the sustainability of job gains in the leisure and hospitality sector. While employment in this sector has surpassed pre-Covid levels, the BLS Jobs Report only indicated 21,000 job gains in June. Furthermore, the latest Job Openings and Labor Turnover (JOLTS) report revealed a significant drop of 108,000 job openings in leisure and hospitality. These trends suggest the potential for softer job growth in this sector moving forward.

Nela Richardson, chief economist for ADP, pointed out that consumer-facing service industries experienced a strong June, contributing to higher-than-expected job creation. However, wage growth in these industries continues to decline, and hiring may be reaching its peak after a late-cycle surge.


What Unemployment Claims Suggest

Examining the latest jobless claims data, initial claims rose by 12,000 in the most recent week, with 248,000 individuals filing for unemployment benefits for the first time. It's important to consider the understated initial claims in the previous week due to the shortened filing time during the Juneteenth holiday.

On the other hand, continuing claims declined by 13,000, with 1.72 million people still receiving benefits after filing their initial claim. Although this metric remains elevated compared to the low point seen in September 2022, it has been steadily decreasing since April and is now at its lowest level since February. The decline in continuing claims can be attributed to both individuals finding new employment and the expiration of certain benefits.


Are More Rate Hikes Ahead?

The minutes from the Federal Reserve's June meeting shed light on their plans for additional rate hikes to their benchmark Fed Funds Rate later this year. It's important to note that the Fed Funds Rate is distinct from mortgage rates, as it pertains to overnight borrowing for banks. The Fed employs rate hikes to manage economic growth and curb inflation.

While the June meeting concluded without a rate hike due to concerns over economic growth, the minutes indicated that some participants favored a 25-basis point increase. Interestingly, the Fed intends to continue hiking rates despite the downward trend in inflation and their anticipation of a mild recession later this year. This raises the question of whether additional rate hikes are necessary if a recession is expected.


Mortgage Rate Outlook: Expected Stability

Despite the fluctuations in the job market and the Federal Reserve's deliberations, the outlook for this week's mortgage rates suggests stability. Here are key points to consider:

Market Dynamics: While labor market reports and the Federal Reserve's rate hike plans influence the overall market sentiment, their immediate impact on mortgage rates appears limited.

  • Economic Factors: The broader economic indicators, such as inflation and GDP growth, will continue to play a role in shaping the mortgage rate environment. However, the current data suggests a relatively stable outlook.

  • Fed Policy: The Federal Reserve's intentions to raise the benchmark Fed Funds Rate do not necessarily translate to an immediate increase in mortgage rates. Mortgage rates are influenced by various factors, including long-term Treasury yields and investor demand for mortgage-backed securities.

  • Supply and Demand: The balance between housing supply and demand, as well as the overall health of the housing market, can impact mortgage rates. However, the current market conditions indicate a relatively stable environment with steady demand.

  • Monitor Market Updates: As mortgage rates can change rapidly, it is essential to stay informed and monitor market updates from reputable sources. Consulting with mortgage lenders or financial professionals will provide the most accurate and up-to-date information specific to individual circumstances.

For additional resources and references on mortgage rates and market insights, consider the following links:

  1. Mortgage News Daily: Stay updated with the latest news, analysis, and trends in the mortgage market.

  2. Freddie Mac's Primary Mortgage Market Survey: Explore weekly mortgage rate data and historical trends from Freddie Mac.

  3. Bankrate: Access a wide range of mortgage rate data, calculators, and educational resources.

  4. The Federal Reserve: Visit the official website of the Federal Reserve to stay informed about monetary policy and its potential impact on mortgage rates.