Johns Finance Corner: December’s Job Gains and What It Means for Mortgage Rates
Greetings, homeowners and future buyers!
As we kick off a new year, it's important to keep a close eye on economic indicators that influence mortgage rates. December showed strong headline job gains, but digging deeper into the data reveals a more nuanced picture.
Impact of Job Gains on Mortgage Rates
Mortgage rates tend to follow the direction of the 10-year Treasury bond. Bonds are influenced by various factors, but inflation data and labor markets are the primary drivers. Higher inflation and increased employment typically push bond yields higher, which in turn drives mortgage rates up.
Labor Market Insights
The Bureau of Labor Statistics (BLS) announced that 256,000 jobs were created in December, significantly higher than the estimated 160,000. This surge in job creation dropped the unemployment rate from 4.2% to 4.1%. However, the BLS report has faced scrutiny, with many economists questioning the accuracy of the data. Last August, a significant downward adjustment of 818,000 jobs was made for the period between April 2023 to March 2024. The Philadelphia Fed recently suggested that job estimates for March 2024 through June 2024 were also overestimated. With a history of downward revisions, it seems likely that labor reports have been presenting a more optimistic view than reality.
ADP Employment Report and Jolts Survey
To highlight the discrepancies, the ADP Employment Report showed weaker private sector job growth than forecasted, with only 122,000 new jobs added in December—the lowest since August. Similarly, the latest Job Openings and Labor Turnover Survey (Jolts) indicated a rise in job openings from 7.839 million to 8.098 million in November, exceeding expectations. Despite this increase, the hiring rate fell to 3.3% and the quit rate dropped to 1.9%, both at over 10-year lows (excluding COVID-19). These trends suggest a weaker labor market, with lower quality job openings and individuals holding onto their current positions longer due to uncertainties about finding better opportunities.
Fed's Focus and Market Response
The Fed and markets tend to place significant emphasis on the BLS report. Following the recent data release, the 10-year Treasury bond yield rose above critical levels not seen since 2023, pushing mortgage rates higher. This week is crucial as we await PPI and CPI inflation reports, Retail Sales, Jobless Claims, as well as December Housing Starts and Building Permits. The key figure to watch is the 10-year Treasury yield, which ideally should stay at or below 4.735. Should it rise above this level, we might see it jump to 5.0, driving mortgage rates to highs not seen since late 2023. Conversely, positive economic data could help keep yields below the critical threshold, potentially leading to lower mortgage rates moving forward.
Stay Informed
As always, staying informed and prepared is essential in navigating the mortgage market. I’m here to provide you with the latest insights and help you make the best decisions for your homeownership journey. Let's watch the data closely this week and hope for positive trends that will benefit all of us.
Thank you for being part of our community, and here's to a prosperous year ahead!
John Lamberg
MORTGAGE LOAN ORIGINATOR
NMLS 189233
