Weekend Talking Points - 'Slack'

“Jobs week” has so far delivered a very consistent message — hiring is slowing and layoffs are rising. We know that rate cuts will start on September 18. But whether we’ll get a 25 or 50 basis point cut will depend on the strength of the Bureau of Labor Statistics jobs report out today.

PCE: flat is ok. July “core” inflation was flat at +2.6% YoY. While there was no further progress towards the Fed’s 2% target, flat is certainly good enough to keep a Sept 18 rate cut on the agenda. [Bureau of Economic Analysis]

Jobs week started with a JOLT. Job openings fell 3% month-over-month to 7.7 million in July, and the June figure was revised downward from 8.2 million to 7.9 million. [Bureau of Labor Statistics]

TP: This is the first time that job openings (7.7 million) have nearly matched the number of unemployed (7.2 million) since March 2018. We had an incredibly tight labor market in 2021–2022, but “slack” in the jobs market is beginning to grow.

ADP report showed limited job growth. Private employers added just 99,000 jobs in August, far below expectations of +145,000, and the lowest figure since January 2021. Wage growth for “job stayers” was flat at +4.8% YoY, and wage growth for “job changers” was also flat at +7.3%. [ADP]

Challenger jobs report shows hiring halt. Through August, US companies have announced 79,697 hiring plans, down 41% YoY and the lowest year-to-date total since Challenger started tracking the data in 2005. The previous low was in 2008, during the Global Financial Crisis!

TP: The important August jobs report from the BLS will come out on Friday morning (today). Consensus expectations are for 160,000 jobs gains and the unemployment rate to reduce from 4.3% in July to 4.2% in August. This report will likely determine whether we get a 25 or 50 basis points cut on September 18.

Beige Book casts doubt on GDP growth. When 9 of the 12 regions report flat to declining economic activity, how is 3% nationwide GDP growth possible? That’s a very good question.

Realtor.com’s August Housing Report. Active inventory is up 35.8% YoY, but still down ~28% relative to pre-pandemic levels. 29 of the Top 50 metros (58%) saw a YoY drop in their median listing prices, with Miami/Ft. Lauderdale -11.7% YoY, San Diego -9.1% YoY, Kansas City -8.5% YoY, and Oklahoma City -7.3% YoY.

TP: Keep in mind that the median listing price is being skewed lower by an increased availability of lower-priced homes, particularly in the South region. The Case-Shiller and FHFA indexes provide better gauges of true home price appreciation/depreciation.

Rents trending (slowly) lower. National rents fell 0.1% MoM and were down 0.7% YoY in August. Rapid rental rate growth in 2021–2022, plus near-record new apartment supply, is keeping rent growth subdued. [Apartment List]

Mortgage Market

For the first time in many months, “jobs week” has been delivering a consistent message:

• JOLTS: Job openings much lower than expected
• Beige Book: 9 out of 12 regions surveyed showed “flat or declining activity” (up from 5 in the previous report)
• Challenger: Announced layoffs spike; weakest hiring plans since 2005
• ADP: Lowest job gains since January 2021

All this data has helped average 30-year mortgage rates fall to 6.35%. That’s down 110 basis points (1.1%) in the last 4 months. We have yet to see this feed through into increased demand, but it’s certainly coming.

Note: the data discussed above doesn’t mean that the BLS report won’t surprise us. It often does. And whether the BLS numbers make any sense or not (or get subsequently revised lower), the bond market will trade aggressively off of it.

Here are the current odds on Fed rate cuts at upcoming FOMC meetings:

• Sept 18: 100% (same as last week); the probability of a 50 basis points at 39% (up from 34% last week).
• Nov 5: US presidential election
• Nov 7: 100% (same as last week); 49% probability that rates will be 75 basis points lower than current (up from 44% last week)
• Dec 18: 100% (same as last week); 41% probability that rates will be 100 basis points lower than current (down from 44% last week).
  

They Said It

“The job market’s downward drift brought us to slower-than-normal hiring after two years of outsized growth. The next indicator to watch is wage growth, which is stabilizing after a dramatic post-pandemic slowdown.” — Nela Richardson, ADP’s Chief Economist

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