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The summer remains hot, and the Olympics has taken over. The Federal Reserve, meanwhile, is ready to cut rates for the first time in more than four years in the upcoming September FOMC meeting (or sooner), especially since the last jobs report suggested that the labor market is cooling faster than expected, and the stock market has been reacting negatively to the news. The economy will likely slow down further in coming months, and there have been some talks of a recession, but is it warranted? Mortgage rates, nevertheless, took a deep dive late last week and early this week as traders moved money to safe havens like bonds, sending Treasury yields tumbling down to the lowest levels since February. Should the downward momentum in rates continue, lower costs of borrowing could help push home sales back up in the third and the fourth quarters.
Job growth slows sharply as unemployment reaches highest level since 2021: The labor market slowed more than expected in July and triggered fears that the U.S. economy could go into a recession. Nonfarm payrolls increased just 114k jobs last month, a sharp decline from the downwardly revised gain of 179k recorded in June and well below the consensus expectations of 185k gain. Most of the job growth was in health care (+55k), leisure and hospitality (23k), and the government (+17k). Other industries continued to exhibit signs of cooling, with white-collar jobs like information, financial services and professional and business services all fell in July. The unemployment rate rose to 4.3% and reached its highest level since October 2021. Wage growth came lower than expected, with average hourly earnings rising 0.2% month-over-month and 3.6% year-over-year. The slowdown in jobs growth renewed recession fears and triggered the worst sell-off of the year on Wall Street.
Federal Reserve left rates unchanged, but market rout may force early rate cuts: The Federal Reserve left the fed funds rate unchanged in its July FOMC meeting but hinted that a rate cut is getting close. Fed Chair Jerome Powell told reporters that a rate cut could be on the table in the next meeting, as some further progress on inflation has been observed. The central bank noted that the risks to both price stability and full employment – the dual mandate of the Fed – continued to move into better balance and Powell confirmed that there was a growing sense of confidence on the committee that a cut could be made in September. With recession fears sparking market sell-off around the world in the past two days, it is possible though that the Fed could make an emergency rate cut before the next scheduled meeting.
Mortgage rates plunge to 15-month low: Mortgage rates plummeted following last week’s jobs report and speculations that the Fed could cut rates before the next FOMC meeting as recession fears surge. Weaker-than-expected job growth in July sparks concerns that the slowdown could extend to the broader economy and lead to a hard landing. Stock markets around the world dived after the release of the latest jobs report, and the global bond rally accelerated in the last two trading days as investors moved their money to safe-haven bonds. The 10-year Treasury yield fell nearly 40 basis points from a week ago and reached its lowest level since June 2023. The average 30-year fixed rate mortgage declined to 6.34% as of August 5, the lowest level in almost 16 months, according to Mortgage News Daily. Rates could stabilize and may even inch back up slightly in the near term, however, as fresh new data suggests that the U.S. service sector was growing at a faster-than-expected pace in July.
Consumers feel down with current conditions but more upbeat with economic outlook: The Conference Board Consumer Confidence Index ticked up in July to 100.4 from a revised 97.8 in June, as consumers downgraded their current conditions but felt slightly more positive about their short-term outlook. The Present Situation Index declined from 135.3 in June to 133.6 in July, while the Expectation Index improved from 72.8 to 78.2. Americans’ assessment of the current labor market situation, in fact, dropped to the lowest level since March 2021, as fewer monthly job additions might have affected their perspective on current job availability. The share of consumers who expected more jobs to be available in the next six months increased though to 14.5% from 13.1% in June. With interest rates dipping but remaining elevated in July, those who planned to purchase a home fell to a 12-year low. The share, however, could bounce back in late summer if rates continue their downward trend in the next few weeks.
Construction spending drops for the second straight month: U.S. construction spending continued to lose momentum, with the total outlays dropping 0.3% in June, its first back-to-back monthly decline in 20 months. The decline was unexpected as economists had predicted a monthly increase of 0.2% after a previously reported 0.1% dip in May. Residential construction declined on a month-to-month basis for the third time in four months, with the latest drop attributed entirely to the weakness in single-family construction. In June, spending on new single-family dipped 1.2% from May, while new multifamily inched up 0.1% from the prior month. On a year-over-year basis though, new single-family remained sharply higher than a year ago by 9.9%, but new multifamily dipped from 12 months ago by 7.4%. The pullback in overall construction spending was due again by elevated interest rates, as rates started trending back up in mid-June after dropping solidly from late May. Since the last week of July, however, mortgage rates have fallen sharply and could decline further in the coming weeks. The outlook for construction, as such, might have brightened slightly for the next couple of quarters.
