Mortgage rates fell this week and they are now far from the levels widely discussed after the election. With the final jobs report for 2024, mortgage rates made a nice move lower today, and it’s been a positive story this week. We discussed this possibility in last week’s Housing Market Tracker: Will there be a Santa Claus rally in mortgage rates? Economic data has played a significant role in the market, unlike speculative theories.
So, what has this jobs week revealed? It aligns with the trend we’ve been observing: the labor market is softening but not collapsing. Additionally, the most significant factor influencing the 10-year yield this week was the notably weaker ISM service sector report rather than any of the labor data released. The mortgage spreads did improve a lot on Friday, too, which helped with rates, so start spreading the news.
Let’s look at the labor data to understand where we stand in the economic cycle.
Jobs Friday
From BLS: Total nonfarm payroll employment rose by 227,000 in November, and the unemployment rate changed little at 4.2 percent, the U.S. Bureau of Labor Statistics reported today. Employment trended up in health care, leisure and hospitality, government, and social assistance. Retail trade lost jobs.
This report is likely noisy due to the recent hurricane and strike-related issues. However, this has been an ongoing trend for the past 14 months. The labor market is softening, but it isn’t breaking. Meanwhile, the wage growth remains higher than what the Federal Reserve desires. The Fed would prefer to see wage growth around 3%, but currently, it stands at 4%.
From BLS: In November, average hourly earnings for all employees on private nonfarm payrolls rose by 13 cents, or 0.4 percent, to $35.61. Over the past 12 months, average hourly earnings have increased by 4.0 percent.
Since the labor market surpassed 157 million people employed in December of 2023 in total non-farm payroll employment, I had anticipated that the monthly job creation figures would align more closely with my expected range of 140,000 to 165,000 jobs per month. This seemed reasonable to me as we headed toward 159 million people working. However, this has only occurred after we got the recent negative revisions to the data. Let’s take a look at the updated figures.
- 3-month average: 172,666
- 6-month average: 143,000
- 12-month average: 189,500
- The total average of all three is 168,000.
We are a tad higher than I was expecting at this point, and this is with all the negative revisions, too. Add 4% wage growth to this story, and the labor market isn’t breaking but getting softer from the levels we saw in 2023. Looking at the unemployment rate, you can see the labor market soften up from the 3.4% low level it had in 2023 up to today’s 4.2%.
All in all, the labor data in 2024 look right to me, except wage growth is staying firmer than I thought it would by this time, as I was looking more in the 3.4%-3.6% camp.
Job openings and jobless claims
The job openings data increased slightly in this week’s report but remained significantly lower than the peak observed during the COVID-19 recovery. I was among the first to predict that job openings would approach 10 million in this cycle, and that estimate turned out to be conservative, as job openings peaked around 12 million.
The internal job openings data shows a weakening labor market, as the percentage of quits and the number of hires have decreased. Hiring is slowing down, but layoffs are not occurring on a large scale; recent jobless claims data indicate that national layoffs remain low.
The headline jobless claims print did rise, but it is still historically low at 224,000. Remember my line in the sand for a recession: Jobless claims on the four-week moving average must exceed 323,000. We are nowhere close to that, as the four-week moving average is at 218,500.
After the jobs report, the 10-year yield fell just a few basis points; mortgage rates did act much better today, as the mortgage spreads improved from two days ago, which helped push mortgage rates lower. As I have often talked about on our weekly tracker article, if mortgage spreads were anywhere close to normal, mortgage rates would be near 6%, and in today’s case, we would be under 6%. We have all seen for two years now that the housing market acts better with mortgage rates down near 6%.
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