Author: Eric BernsteinPublished:
A lot happened during a short holiday week! The labor market and the US gross domestic product (or GDP) showed more signs of cooling, and if you believe that the SAHM rule is a reliable predictor of a recession, then we are dangerously close to one - which is actually good news for everyone hoping for lower rates this year.
The average rate on a 30-year fixed rate conventional loan fell to 6.89% (down from the 6.94% I reported last week). We've been hovering just under 7% for months waiting for news that will force the Fed's hand and cause a BIG drop. With a important CPI report and Powell speaking in front of Congress this week, could this be the week we've been waiting for?
The average rate on a 30-year fixed rate conventional loan fell to 6.89% (down from the 6.94% I reported last week). We've been hovering just under 7% for months waiting for news that will force the Fed's hand and cause a BIG drop. With a important CPI report and Powell speaking in front of Congress this week, could this be the week we've been waiting for?
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The Unemployment Rate Heads Higher
We all have family and friends who are out of work and struggling to find a new job in their field, but the reporting was defiantly showing a strong, healthy jobs market - until now.
3 major reports are causing concern in the labor market.
1. ADP Employment Data for June - Only 150,000 jobs were created (less than 160,000 expected) and a whopping 63,000 of those jobs came from the leisure and hospitality industry (aka likely seasonal summer jobs). “Job growth has been solid, but not broad-based,” said Nela Richardson, chief economist, ADP. “Had it not been for a rebound in hiring in leisure and hospitality, June would have been a downbeat month.”
2. Continuing Jobless Claims Up for 9th straight week - People who lose their jobs are having a VERY hard time finding new work as the continuing jobless claims data keeps rising. We are now at the highest level of continuing unemployment benefit claims since November 2021, suggesting that demand for workers is falling!
3. Unemployment Rate Ticks Up Again - The Jobs Report from Friday showed that the unemployment rate now stands at 4.1% (higher than the 4% expected). Job growth again was less than stellar. While the June data barely beat expectations, the May data was downwardly revised from 272,000 jobs to 218,000 jobs. That's a HUGE correction. The SAHM rule signals the start of a recession when the three-month moving average of the national unemployment rate rises by 0.50 percentage points or more relative to the minimum of the three-month averages from the previous 12 months. Right now we are at 0.43.
Other signs of a tough economy
Manufacturing, which accounts for 10.3% of the US economy appears to be under pressure. US Factory Orders are DOWN .5% instead of the expected increase of .3%. Higher interest rates and lower demand for goods were cited as reasons for the down month.
The GDPNow model (provided by the Federal Reserve) estimates that real GDP growth (seasonally adjusted annual rate) in the second quarter of 2024 is 1.5 percent on July 3, down from 1.7 percent on July 1. The lower this model goes, the more likely we are to see a recession.
We all know that the housing market has been "frozen" due to higher rates, but as we see this cooling effect bleed out into other industries, we'll see the Fed start to take action to avoid a full blown recession.
RATE CUT WATCH:
Several members of the Fed spoke at the ECB conference in Portugal last week.
Chicago Federal Reserve Bank President Austan Goolsbee appears ready to cut rates as he sees some "warning signs" of weakening in the economy, adding that the U.S. central bank's goal is to get inflation down without stressing the labor market.
Whereas, Powell, who also spoke in the meeting, won't make the same mistake he made at the end of 2023 and is very reluctant to target any date for rate cuts. He simply said that we are back on track in the fight to lower inflation and we need to see more data before making a cut.
The Unemployment Rate Heads Higher
We all have family and friends who are out of work and struggling to find a new job in their field, but the reporting was defiantly showing a strong, healthy jobs market - until now.
3 major reports are causing concern in the labor market.
1. ADP Employment Data for June - Only 150,000 jobs were created (less than 160,000 expected) and a whopping 63,000 of those jobs came from the leisure and hospitality industry (aka likely seasonal summer jobs). “Job growth has been solid, but not broad-based,” said Nela Richardson, chief economist, ADP. “Had it not been for a rebound in hiring in leisure and hospitality, June would have been a downbeat month.”
2. Continuing Jobless Claims Up for 9th straight week - People who lose their jobs are having a VERY hard time finding new work as the continuing jobless claims data keeps rising. We are now at the highest level of continuing unemployment benefit claims since November 2021, suggesting that demand for workers is falling!
3. Unemployment Rate Ticks Up Again - The Jobs Report from Friday showed that the unemployment rate now stands at 4.1% (higher than the 4% expected). Job growth again was less than stellar. While the June data barely beat expectations, the May data was downwardly revised from 272,000 jobs to 218,000 jobs. That's a HUGE correction. The SAHM rule signals the start of a recession when the three-month moving average of the national unemployment rate rises by 0.50 percentage points or more relative to the minimum of the three-month averages from the previous 12 months. Right now we are at 0.43.
Other signs of a tough economy
Manufacturing, which accounts for 10.3% of the US economy appears to be under pressure. US Factory Orders are DOWN .5% instead of the expected increase of .3%. Higher interest rates and lower demand for goods were cited as reasons for the down month.
The GDPNow model (provided by the Federal Reserve) estimates that real GDP growth (seasonally adjusted annual rate) in the second quarter of 2024 is 1.5 percent on July 3, down from 1.7 percent on July 1. The lower this model goes, the more likely we are to see a recession.
We all know that the housing market has been "frozen" due to higher rates, but as we see this cooling effect bleed out into other industries, we'll see the Fed start to take action to avoid a full blown recession.
RATE CUT WATCH:
Several members of the Fed spoke at the ECB conference in Portugal last week.
Chicago Federal Reserve Bank President Austan Goolsbee appears ready to cut rates as he sees some "warning signs" of weakening in the economy, adding that the U.S. central bank's goal is to get inflation down without stressing the labor market.
Whereas, Powell, who also spoke in the meeting, won't make the same mistake he made at the end of 2023 and is very reluctant to target any date for rate cuts. He simply said that we are back on track in the fight to lower inflation and we need to see more data before making a cut.
Odds on a September rate cut increased significantly after last week. We are at 74% chance of seeing a rate cut on September 18th.
The Fed is speaking to Congress this Tuesday and Wednesday and CPI is expected to come in at 3.1% this Thursday. If CPI comes in at or below 3%, I expect interest rates to fall dramatically!
Key reporting dates this week:
Mon, 7/8: Consumer credit
Tues, 7/9: Fed Testifies to Congress
Wed, 7/10: Wholesale inventories, Fed Testifies to Congress
Thurs, 7/11: Initial jobless claims, CPI, Core CPI, Fed presidents speaking
Fri, 7/12: Producer price index, Core PPI
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About the Author:
Eric Bernstein is the President and Co-Founder of LendFriend Mortgage, where he helps homebuyers make smarter, more confident decisions in today’s fast-moving housing market. With over a decade of experience guiding hundreds of clients—from first-time buyers to seasoned investors—Eric brings a mix of market insight, strategy, and personalized service to every mortgage transaction. Each week, Eric breaks down the housing and economic headlines that matter, giving readers a clear, no-fluff view of what’s happening and how it might impact their buying power.