Author: Eric BernsteinPublished:
Last week was a volatile one for mortgage rates. Rates jumped after job openings came in much hotter than expected, but then fell back after ADP and the official Jobs Report showed actual hiring is slowing. Fed Chair Kevin Warsh also made it clear that markets should expect fewer hints from the Fed going forward, which means every inflation and labor report will matter even more. G great news for future inflation readings - oil is still below $70/barrel.
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JOBS JOBS JOBS
JOLTS - Last week started with a surprise: job openings jumped to nearly 7.6 million in May, even though economists expected them to fall closer to 7 million. That’s a big miss, and markets treated it like a sign that the labor market may still have more strength than expected. But the top line job openings was a bit misleading. Hiring actually fell for the third month in a row, layoffs didn’t move much, and quits stayed muted, which tells us employers may be posting jobs but still aren’t rushing to bring people on. So yes, the headline was bad for mortgage rates, and rates jumped after the report, but this is still a cautious labor market — not a hiring boom.
ADP - ADP told a more realistic story. Private payrolls rose by 98,000 in June, below the 110,000 expected and down from 122,000 in May. Nearly half of the gains came from education and health services, while leisure and hospitality added just 2,000 jobs — not exactly a sign that consumers are powering a broad hiring surge. ADP’s own economist said the overall effect is a slowdown in job creation, and that’s why mortgage rates fell after the report. It didn’t scream recession, but it did push back against the idea that JOLTS meant the labor market was reaccelerating.
Jobs Report - The official Jobs Report backed up the idea that hiring is slowing. The U.S. added just 57,000 jobs in June, well below the 115,000 expected, and prior months were revised lower too. The unemployment rate fell to 4.2%, but that headline was also misleading because the labor force participation rate dropped to 61.5%, the lowest since March 2021, and household employment fell by 507,000. For mortgage rates, this was the most important report of the week: JOLTS sent rates higher, but ADP and the Jobs Report showed actual hiring cooling, which helped rates fall back down.
Fed Chair Warsh's First Big Speech
Fed Chair Kevin Warsh used his first major international appearance to push one of the biggest changes he wants to make at the Fed: less “forward guidance.” In simple terms, Warsh doesn’t want the Fed promising or even hinting at where rates are headed months in advance when no one actually knows what the economy will look like. He found plenty of support from other major central bankers, including ECB President Christine Lagarde, who said she regretted feeling bound by forward guidance in the past. For markets, that means we may get fewer clues about future rate moves and even more focus on each new inflation and labor report as it comes out.
As for rates, Warsh again emphasized that the Fed will bring inflation back to 2%, which is not exactly what anyone hoping for immediate rate cuts wants to hear. Nearly every Fed official currently expects either no change or a rate hike this year, with only one official projecting a cut. But Warsh continues to leave the door open to a different path if productivity keeps improving, particularly because of AI. His argument is that if the economy can produce more without creating more inflation, the Fed may eventually have room to lower rates.
Case-Shiller Home Price Index
Home prices are barely growing nationally. The Case-Shiller National Index rose just 0.8% year-over-year in April, only slightly higher than March’s 0.7% increase. More than half of the 20 cities tracked by the index still posted annual declines for the 11th straight month, showing just how much the housing market has cooled. But the national number continues to hide huge differences between markets: Chicago prices were up 6.5%, while Seattle was down 2.3% — a nearly 9% gap that shows just how local this housing market has become.
In Texas, Dallas remained one of the weaker markets in the country, with home prices down 1.6% from a year ago. That shouldn’t be surprising. Inventory has rebuilt much faster across Texas than in supply-constrained markets in the Northeast and Midwest, giving buyers more options and forcing sellers and builders to compete harder. National home prices may be holding near flat, but Texas continues to be one of the clearest examples of what happens when supply comes back: buyers gain leverage and prices come under pressure.
What to expect this week?
After last week’s heavy labor reporting, this week should be a little quieter. There are no major inflation or jobs reports, but the Fed minutes and several Fed speakers could still move mortgage rates.
Monday brings ISM services, which will give us another look at the largest part of the U.S. economy, followed by comments from Fed Governor Christopher Waller.
Wednesday is the biggest day of the week with the release of the minutes from the Fed’s June meeting. Nearly every Fed official currently expects either no change or a rate hike this year, so markets will be looking for more detail on how worried the Fed is about inflation and what it would take to change that outlook.
Thursday brings jobless claims and existing home sales, along with speeches from New York Fed President John Williams and Dallas Fed President Lorie Logan. Existing home sales are expected to rise slightly from 4.17 million to 4.20 million, while jobless claims will give us another look at whether the labor market is continuing to cool.
Overall, it’s a lighter week for economic data. The Fed minutes are the biggest potential market mover, but oil prices and any new developments with Iran will also remain important. With oil still below $70/barrel, keeping it there would be great news for future inflation readings and mortgage rates.
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