Morning Report: Cracks are forming in the labor market.

Vital Statistics:

 LastChange
S&P futures3,778-15.75
Oil (WTI)87.620.12
10 year government bond yield 3.77%
30 year fixed rate mortgage 6.59%

Stocks are lower this morning on no real news. Bonds and MBS are flat.

OPEC is cutting production, which will drive up oil prices and make the Fed’s job harder. Some strategists are forecasting triple-digit oil prices as the cuts begin to bite. Supposedly the Administration is looking at releasing reserves from the Strategic Petroleum Reserve, but that will be a temporary band-aid at best. Look for consumer sentiment to turn even more negative as gas prices increase.

Home prices rose 4.2% QOQ and 14.8% YOY in August, according to the Clear Capital Home Data Index. This index is about a month ahead of other home price indices like Case-Shiller and FHFA.

Interestingly, we are seeing the biggest quarterly growth in the Northeast and the Midwest, which have been the laggards over this entire housing upturn. The Midwest makes sense in terms of remote work and low overall prices. The Northeast is strange in that it has lagged the rest of the country, but still has high overall prices.

Speaking of home prices, we are seeing some originators trim their forecasts for the new conforming loan limits. Generally speaking the big correspondents will begin to accept loans under the anticipated higher limits ahead of the formal FHFA announcement in December. This year, correspondents have started accepting loans up to $715k.

PennyMac just backed away from that number and reduced it to $700k and I am hearing more are doing the same.

US based employers announced almost 30,000 job cuts in September, which is up 68% compared to a year ago. “Some cracks are beginning to appear in the labor market. Hiring is slowing and downsizing events are beginning to occur,” said Andrew Challenger, Senior Vice President of Challenger, Gray & Christmas, Inc. “The cooling housing market and Fed’s rate hikes are leading to job cuts among mortgage staff at banks and lenders. The recession concerns are leading to increased uncertainty, and companies across sectors are beginning to reassess staffing needs,” said Challenger.

Hiring plans are also the lowest since 2011. Seasonal hiring for the holiday shopping season should be in full swing at this point, however retailers seem to be taking a wait-and-see approach. Bottom line, the Fed’s tightening is gaining traction.

Separately, initial jobless claims rose to 219,000 last week.

Apartment vacancy rates remain at multi-decade lows, however we continue to see deceleration in rental inflation. Given that rental inflation tends to lag housing inflation by about 21 months, I suspect we might see a re-acceleration in rent prices, especially since homebuilding has been so depressed.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

2 thoughts on “Morning Report: Cracks are forming in the labor market.”

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