MBS Road Signs 12-10-24

Strong Headline Jobs Report but Underlying Weakness

The Bureau of Labor Statistics (BLS) reported that there were 227,000 jobs created in November, which was slightly above estimates of 214,000, though many of these were bounce back jobs from the storms and strikes in October. Positive revisions to September and October added 56,000 jobs to those months combined. The unemployment rate rose from 4.1% to 4.2%.

Private Sector Job Growth Below Forecasts, Pay Gains Accelerate

November's private sector job growth was weaker than economists had forecasted per ADP's Employment Report, which showed that employers added 146,000 new jobs versus the 160,000 that were expected. October's report was also revised lower from 233,000 job creations to 184,000, subtracting 49,000 jobs from the previous report.

What's the bottom line?

Large businesses (500+ employees) accounted for the bulk of hiring last month as they added 120,000 jobs, while small businesses (< 50 employees) continued to struggle, shedding 17,000 jobs. ADP also noted that performance among sectors was mixed, with manufacturing losing jobs and financial services and leisure/hospitality showing signs of softness.

However, the trend lower in wage growth did reverse course, with annual pay gains growing for both job-stayers (+4.8% from +4.7%, the first YoY increase in 25 months) and job changers (+7.2% from +6.7%). This could have been influenced by seasonal hires, as companies may have offered more incentives to workers ahead of the busy holiday shopping season, so it will be something to monitor moving forward in upcoming reports.

Deeper Look at Uptick in October's Job Openings

The latest Job Openings and Labor Turnover Survey (JOLTS) showed that job openings rose from a downwardly revised 7.37 million in September to 7.74 million in October, which was above what economists had forecasted. The hiring rate fell to 3.3%, which is the lowest level since 2013 not including COVID. The quit rate increased from 1.9% to 2.1%, bouncing slightly higher from the lowest level since 2015 excluding COVID.

What's the bottom line?

While the increase in job openings was unexpected and above estimates, the total may be weaker than the data implies, as the rise in remote work has led to job listings being posted in multiple states more frequently. Plus, a low quit rate also suggests there is less poaching from other companies and fewer people feel confident about finding new employment.

In addition, the job openings to unemployment ratio (which compares the number of job openings to the number of unemployed persons) is at 1.1. This is a big decline from the peak above 2 in 2022 and shows a labor market that is cooling.

Low Fire, Low Hire Trend Lingers

Initial Jobless Claims rose 9,000 in the latest week, with 224,000 people filing for unemployment benefits for the first time. However, Continuing Claims fell by 25,000, as 1.871 million people are still receiving benefits after filing their initial claim. Despite this most recent decline, Continuing Claims remain elevated, now topping 1.8 million for the 26th week in a row.

What's the bottom line?

The low fire, low hire trend remains persistent, as employers continue to hold on to their workers while also slowing down their pace of hiring. This was also reflected in the latest Job Cuts report from Challenger, Gray & Christmas, which showed that hiring announcements fell to their lowest year-to-date level since 2015.

Annual Home Price Growth Continues

CoreLogic's Home Price Index showed that home prices nationwide rose 0.02% in October, which was stronger than forecasts. Prices were also 3.4% higher when compared to October of last year. CoreLogic forecasts that home prices will fall 0.03% in November and rise 2.4% in the year going forward, though their forecasts tend to be conservative.

What's the bottom line?

CoreLogic's appreciation data has been weaker than Case-Shiller's, which is considered the gold standard in tracking changes in residential real estate values. For example, Case-Shiller's latest report showed that home values nationwide were 3.9% higher in September than a year earlier, while the Federal Housing Finance Agency also reported 4.4% annual growth over that same period.

In addition, the fall usually brings less competition in the housing market because families with school-age children like to be settled ahead of a new school year. While this season is typically the softest for home price growth, these reports show that appreciation remains healthy overall.

Family Hack of the Week

What to look for this week:

The Fed will be watching crucial inflation data when the Consumer Price Index for November is reported on Wednesday. The Producer Price Index, which measures wholesale inflation, follows on Thursday along with the latest Jobless Claims. 

Technical Picture