John’s Finance Corner: Labor Softness and Inflation Set the Stage for Fed Week
More labor data continues to signal growing softness in the job market, while the latest inflation readings arrived mostly in line with expectations all as we head into a highly anticipated Fed Week and the possibility of another rate cut.
Last week’s ADP jobs report showed the private sector lost 32,000 jobs in November, falling well short of forecasts. Small businesses were hit hardest, cutting 120,000 jobs, while medium-sized companies added 51,000 and large employers added 39,000. Six out of ten industries shed jobs, though education and health services added 33,000 and leisure and hospitality gained 13,000, likely reflecting seasonal hiring.
Wage growth continues to favor workers who change jobs, rising 6.3% year over year, compared to 4.4% for those who stay. However, the 1.9% gap between job switchers and stayers is the narrowest in five years, indicating less competitive hiring and fewer aggressive wage offers. Meanwhile, initial jobless claims fell by 27,000 to 191,000 though the decline was likely influenced by the Thanksgiving holiday. Continuing claims dipped slightly, but remain above 1.9 million, pointing to ongoing challenges for those currently unemployed.
On the inflation front, the latest Personal Consumption Expenditures (PCE) data the Fed’s preferred inflation gauge showed overall prices rose 0.3% in September, pushing annual inflation from 2.7% to 2.8%. Core PCE, which excludes food and energy, rose 0.2% on the month and eased slightly year over year from 2.9% to 2.8%, coming in better than expected.
This week is a pivotal one for financial markets and mortgage rates. The Federal Reserve begins its two-day meeting on Tuesday, with the potential for another Federal Funds Rate cut on Wednesday. It’s crucial to remember that a Fed rate cut does not automatically mean lower bond yields or mortgage rates — in fact, recent cuts have been followed by rate increases.
Also on Tuesday, the delayed JOLTS report will provide updated job openings data for September and October, offering another view of labor demand. The week wraps up with the latest jobless claims report on Thursday.
We have seen bond yields and mortgage rates trend higher over the past week. The combination of new labor data, the Fed’s rate decision, and market response to Chairman Powell’s remarks on Wednesday will play a major role in determining where rates head next.
John Lamberg
MORTGAGE LOAN ORIGINATOR
NMLS 189233
