The BLS announced the creation of 216,000 jobs in December
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The BLS announced the creation of 216,000 jobs in December, surpassing the forecasted 170,000. However, this optimism is tempered by revisions to October and November figures, which collectively saw a reduction of 71,000 jobs. Despite these fluctuations, the unemployment rate remains stable at 3.7%. Below expectations, which were set at 3.8%.
The headline job growth for December, while initially promising, should be approached with caution. Past trends indicate potential downward revisions, as evidenced by last year's cumulative reduction of nearly half a million jobs from initial reports. The pattern is pretty obvious at this point.
The Jobs Report comprises two distinct surveys: the Business Survey, which generates the headline job figure through modeling and estimations, and the Household Survey, a more real-time assessment based on household employment status, which surprisingly indicated 683,000 job losses. Another key indicator, the average weekly hours worked, also saw a slight decline. This reduction, amounting to 30 minutes less per week across the labor force, could be equated to a loss equivalent to 2 million jobs.
In contrast, the ADP Employment Report presents a more optimistic view of the private sector, where December saw an addition of 164,000 jobs, particularly in service industries. Notably, annual pay increases for both job stayers and changers have moderated from their previous highs.
However, the latest Job Openings and Labor Turnover Survey (JOLTS) presents a different picture, with job openings at a two-year low and a decrease in the hiring and quit rates. This data, while insightful, may be skewed due to the prevalence of remote work and multiple-state job postings. Recent trends in unemployment filings, particularly during the holiday season, suggest a more complex labor market scenario. While initial jobless claims decreased, the trend in continuing claims indicates a challenging environment for those seeking employment post-layoff.
While some aspects of the labor market show resilience and growth, others reveal underlying challenges and uncertainties, reflecting a dynamic and multifaceted economic landscape. The labor market is a strong factor in the Fed’s decision making process. Rate cut expectations are down 10% since last week’s job news. The markets are still expecting a Fed pivot in 2024, but proceed with caution in delivering the news.
We want inflation tamed, and lower rates, but not too fast. A quick spike in buyer activity with low inventory presents more challenges to affordability.
Mortgage rates impact purchasing power, and buying power is critical. We want people working and wages rising. We also need some relief with mortgage rates. Its on the way. Mortgage rates are down from their peak in ‘23. Take a look below to see the significant difference in payment when buying with a 6.5% rate, instead of 8%.
In the four weeks leading up to December 31, the median U.S. mortgage payment decreased to $2,361, a $372 (14%) reduction from the record high in October, marking its lowest point in almost a year. This drop coincides with a decline in mortgage rates, which fell to 6.61% at December's end from a 23-year peak of 8.03% in late October.
As mortgage rates recede, early-stage homebuying interest is showing signs of resurgence. Buyers are taking advantage of these lower rates and a 10% year-over-year increase in new listings. The Redfin Homebuyer Demand Index, which tracks requests for tours and other homebuying services, has risen 10% from the previous month, reaching its highest point since August. Additionally, the rate of decline in pending sales has slowed, now down just 3% annually, indicating the smallest drop in two years.
FED MINUTES INDICATE RATE CUTS IN ‘24The recent minutes from the Federal Reserve's December meeting reveal a significant shift in perspective among Fed members, suggesting that rate cuts could be on the horizon for 2024. This change in stance is largely attributed to the successful management of inflation, as evidenced by the decrease in Core Personal Consumption Expenditures, the Fed's preferred inflation gauge that excludes the often unpredictable food and energy sectors. The Fed also expressed concerns about the potential economic risks associated with maintaining an "overly restrictive" monetary policy for an extended period. After a series of aggressive rate hikes - eleven increases since March 2022 - aimed at cooling the economy and controlling inflation, the majority of Fed participants now believe that a reduction in the benchmark Fed Funds Rate, the rate at which banks lend to each other overnight, could be warranted by the year's end. However, the exact timing and magnitude of these rate cuts remain uncertain, as the minutes did not provide specific details on when they might be implemented. In a cautious approach, the Fed underscored the presence of "an unusually elevated degree of uncertainty" in the current economic environment. This statement serves as a reminder that while rate cuts are being considered, the possibility of further rate hikes has not been entirely ruled out. The Fed emphasizes its commitment to maintaining flexibility in its monetary policy, ready to adjust course as necessary based on evolving economic conditions and data. This balanced approach highlights the Fed's vigilance in navigating the complex interplay of economic recovery, inflation control, and financial stability. Side note: Since 1970, the 10-year US Treasury yield has declined an average of 0.9% in the 3 months before the first Fed rate cut in a cycle. The market is currently expecting the first rate cut on March 20, which is less than 3 months away. Let’s watch closely.
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