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Weak jobs and manufacturing reports that might otherwise have taken pressure off mortgage rates had the opposite effect on Friday, as bond market investors looked to next week’s election, Federal Reserve meeting and government bond auctions.
Employers added just 12,000 workers to their payrolls in October, the Bureau of Labor Statistics said, and previous estimates for job growth in August and September were revised down by 112,000 workers.
Those kinds of numbers would typically have bond market investors snapping up government debt and mortgage-backed securities in anticipation that the Federal Reserve will accelerate rate-cutting plans this year and next.
After the jobs report was released, the yield on the 10-year Treasury initially eased six basis points, to 4.22 percent. But by the end of the day, the 10-year Treasury yield – a barometer of mortgage rates – had risen 14 basis points from the day’s low to close at 4.36 percent, a level not seen since early July.
An index maintained by Mortgage News Daily showed 30-year mortgage rates holding steady at 7.09 percent on Friday.
Fed policymakers are expected to take Friday’s weak jobs report lightly, as Hurricanes Helene and Milton and a strike at Boeing were expected to weigh on job creation in October.
Samuel Cemetery
But the strikes and hurricanes “explain some of the weakness,” Pantheon Macroeconomics’ US chief economist Samuel Tombs said in a note to clients.
Excluding sectors that tend to be hardest hit by hurricanes — temporary help and recreation and hospitality — and the striking transportation machinery manufacturing sector, payrolls rose by 69,000 in October, or half the average of the previous 12 months, Tombs noted.
That decline in rent “seems more pronounced after the big August and September wage revisions,” Tombs said.
Job growth is slow
Payrolls are now projected to have grown by just 78,000 in August, rather than 159,000, and September’s wage growth was revised down to 223,000 instead of 254,000.
“As things stand, the six-month average in September — before the Boeing strike and the hurricanes — was just 148,000, down nearly 100,000 from the previous six months,” Tombs noted. “It would not be surprising if that figure were revised down again, given the implied pattern of lower revisions recently.”
Another sign that the economy is cooling comes from the latest Manufacturing ISM report, which showed the manufacturing sector contracted in October for the seventh month in a row and the 23rd time in the past 24 months.
The ISM manufacturing index dipped slightly in October, to 46.5 percent, but it was the lowest reading of the year, and forecasters had expected the index to improve to 47.2 percent.
Any reading above 42.5 percent over time, “generally indicates an expansion of the economy as a whole,” the Institute for Supply Management said when it released its latest figures.
The slow pickup in new orders was a “bright spot” in the report, Pantheon US economist Oliver Allen said in a note to clients.
Oliver Allen
“We doubt the sector’s fortunes will begin to improve anytime soon, despite the increase in new orders in October,” Allen said. “Many measures of investment intentions remain very depressed, bank credit remains scarce, corporate bond yields are relatively high, and external demand is too weak to change significantly. At the moment, production is struggling. “
The unemployment rate is stable
The storms and strikes did not affect October’s unemployment numbers, based on household survey data. Workers are still counted as employed even if they are on strike or unable to work due to inclement weather, Allen noted.
Still, the number of unemployed workers increased by 150,000 in October, reaching 6.98 million.
Although the unemployment rate increased from 4.05 percent to 4.14 percent during the same period, that is within the poll’s margin of error. Rounded to the nearest tenth of a percentage point, the unemployment rate remained unchanged at 4.1 percent.
The increase in unemployment in July triggered “Sahm’s Law,” a recession indicator coined by economist Claudia Sahm.
“The 4.1 percent unemployment rate means we’re no longer breaking ‘Sahm’s Law,’ which is an indicator of recession and welcome news,” KPMG Americas Chief Economist Diane Swonk wrote in X.
“Such rules were meant to be broken,” Swonk said, and other labor market reports are encouraging.
That includes Wednesday’s ADP report estimating private employers added 233,000 jobs in October and an improvement in job prospects in the Commission’s Consumer Confidence Index for October.
Why are house prices rising?
Although inflation is slowly falling from the Fed’s 2 percent target, long-term rates on government debt and mortgages have been rising since Fed policymakers approved the first rate cut in more than four years on Sept. 18.
The Fed does not control long-term rates directly, and they have been rising after a series of data reports that suggested the economy is surprisingly healthy and still vulnerable to inflation.
The strength of the economy casts doubt on how quickly the Fed will lower short-term rates, but there are also concerns about the rising national debt.
“Bond watchers” estimated that “regardless of which party wins the White House and Congress, fiscal policies will end the budget deficit and fuel inflation,” Wall Street veteran Ed Yardeni warned Monday, as mortgage rates rose 7 percent.
The CME FedWatch tool shows that after the jobs report, futures market investors are more confident than last week that the Fed will approve a 25 basis point rate cut at each of its remaining meetings this year, on November 7 and December 18. .
But futures markets show that investors are increasingly taking Fed policymakers at their word when they say they will be wary of the pace of future rate cuts.
“The lower case is partly due to the US presidential election on Tuesday and Thursday’s Federal Reserve meeting,” Bloomberg strategist Alyce Andres said on Friday. “If it weren’t for these two pending events, the huge miss on paid titles and the downward revisions would have yielded a much higher yield.”
Another important indicator of the future path of mortgage rates is on the floor on Tuesday when the Treasury Department is scheduled to hold a quarterly auction of the 10-year Treasury.
In addition to $42 billion in 10-year Treasuries, auctions of $58 billion in 3-year notes and $25 billion in 30-year bonds are also on the floor next week. The auctions will reveal what returns investors are willing to accept on $125 billion in government debt.
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