Market Update - February 5th, 2024
Good morning, team! Hope you all enjoyed the beautiful weather this weekend! It feels like Spring is right around the corner and thankfully Punxsutawney Phil agrees! It was an interesting week in the mortgage world. Let’s dive into the details!
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Read time: ~5 minutes
Mortgage Rates Receive a Gut Punch 👊
They say everything in life is temporary. So if things are going good, enjoy it because it won’t last forever. I felt this exact sentiment in my soul as the markets came to a close on Friday. We’ve all enjoyed a solid stretch of declining rates. That quickly came to a halt on Friday as mortgage rates got crushed with the release of the January Jobs report.
The Jobs Report that was released on Friday saw the creation of 353,000 jobs for the month of January, nearly double the anticipated 180,000. There was also an additional 126,000 in positive revisions to the previous two months reports. It was a blockbuster report that absolutely no one saw coming.
Remember, a strong resilient economy is bad for mortgage rates. The strong jobs report almost eliminates any hopes for a Fed rate cut in March. The Fed continues to say they will make their decisions to cut rates dependent on current data. The data is clearly indicating that the economy is still strong amid higher rates.
Finally, last Wednesday was the first Federal Reserve interest rate meeting of the year. There are a total of eight scheduled annually. At the press conference, Powell reported that while he expects to cut rates this year, he’ll need to see strong data to support the move. He doesn’t currently see any indication of a need to cut.
Key Takeaway : We need to see weakness in the economy before the Fed begins to take steps to lowering rates. A realistic expectation for a Fed Rate cut is now shifting to May.
Is the Job Market Really on Fire?! Let’s Dig Deeper 👷
After the blockbuster jobs report was released on Friday, Nick and I were left dazed and confused with the strong employment figures. Especially when this type of data has a direct impact on mortgage rates. You may recall that just last week, Nick discussed in our newsletter about all the employers that have recently announced layoffs. How in the world is the Bureau of Labor Statistics (BLS) reporting such robust employment figures?!
A shout out to our avid reader, Vince Finney, Managing Director for Investments at Bibler Finney Panfil Private Wealth Management Group, for shedding light on this situation by highlighting a noteworthy aspect to this apparent “robust” jobs report.
According to the January 2024 Jobs report, there were 133.1 million full-time jobs and 27.9 million part-time jobs in the U.S., which is great! While this seems positive, a closer look at the data from February 2023 reveals a different story. In February 2023, the U.S. had 133.2 million full-time jobs, which is more than we have now! Which means all of the job growth within the past year has been from part-time jobs! Part-time jobs have increased by 870,000 since February 2023.
This information is worrisome, as the blockbuster Job Report released by the government might create the impression that the job market is thriving. However, it is evident the wrong type of jobs are being added to the workforce. I wouldn’t necessarily view individuals taking up second and third jobs as positive signs of a strong labor market. Despite these misleading reports, the stock market remains close to all-time highs, and the party continues to rage on.
Key Takeaway : We will see mortgage rates stay elevated if we continue to see robust employment figures. Jerome Powell has mentioned that any decision to cut rates will be based upon data. There is no reason to significantly cut rates when government reports continue to indicate a strong labor market. The odds of a March rate cut have drastically been reduced. May is looking to be more likely with each passing day.