
This week brought a welcome decrease in mortgage rates, offering a stark contrast to the elevated figures that followed the recent election.
The release of the final jobs report for 2024 played a pivotal role in this decline, marking a week filled with much-needed positive economic news.
Unlike mere speculation, the influence of this economic data on the market is hard to ignore.
Reflections on Jobs Week
The latest jobs report aligns with ongoing trends, revealing that while the labor market shows signs of softening, it is not facing a collapse.
This week’s fall in the 10-year yield was largely attributed to a disappointing ISM services sector report rather than the labor statistics themselves.
On Friday, a notable improvement in mortgage spreads further contributed to the downward trend in mortgage rates.
Noteworthy Labor Metrics
The Bureau of Labor Statistics (BLS) reported an addition of 227,000 jobs to the nonfarm payrolls in November, with the unemployment rate remaining steady at 4.2 percent.
Growth sectors included health care, leisure and hospitality, government, and social assistance, while the retail trade sector faced job losses.
It’s important to note that fluctuations in these figures may be influenced by recent hurricane impacts and disruptions stemming from strikes.
Yet, these variations reflect a larger trend evident over the past 14 months.
While the labor market is indeed showing some softening, it demonstrates resilience.
Wage growth continues to exceed the Federal Reserve’s target, which prefers an increase around 3 percent, as the current figure sits at 4 percent.
In November, average hourly earnings for private nonfarm employees rose by 13 cents or 0.4 percent, bringing the total to $35.61.
Over the past year, hourly earnings have increased by 4.0 percent.
While I had initially expected monthly job creation to align more closely with the anticipated range of 140,000 to 165,000—especially given the total employment figure of 159 million—I find the current data somewhat surprising, particularly when accounting for recent downward revisions.
Here’s a fresh look at the averages:
- 3-month average: 172,666
- 6-month average: 143,000
- 12-month average: 189,500
- Overall average: 168,000
Although these numbers are slightly above my expectations, they incorporate several negative revisions.
The 4% wage growth indicates that while the labor market isn’t collapsing, it is softening when compared to 2023 conditions.
The unemployment rate has increased from its 3.4% low in 2023 to the present 4.2%.
Trends in Job Openings and Unemployment Claims
The latest report noted a slight uptick in job openings, though these numbers remain significantly below the highs seen during the COVID-19 recovery.
I previously forecast that job openings might hit around 10 million during this cycle; however, they peaked near 12 million, which was a conservative estimate.
Examination of internal job openings data points to a weakening labor market.
Both the rates of job quits and new hires are on the decline.
While hiring is slowing down, large layoffs are currently not a concern, as recent jobless claims data reflects low levels of layoffs nationally.
Although total jobless claims have risen, they remain historically low at 224,000.
For context, my threshold for identifying a recession is a four-week moving average of jobless claims surpassing 323,000—a figure we are well below, with the current average at 218,500.
In the wake of the jobs report release, the 10-year yield experienced a slight drop, which helped lower mortgage rates.
Significant improvements in mortgage spreads over the past couple of days have also played a crucial role in this reduction.
If mortgage spreads were to revert to more typical levels, we could see mortgage rates around 6%.
Historical insights from the past two years suggest that the housing market tends to flourish when mortgage rates hover near this 6% mark.
Source: Housingwire