The Labor Department’s release of the March nonfarm payrolls report on Good Friday showed the Federal Reserve’s Quantitative Tightening (QT) measures to curb inflation are gradually putting the brakes on the previously red-hot labor market.
The report shows nonfarm payroll employment rose by 236,000, nearly in line with economists’ expectations of 239,000 jobs added. The unemployment rate came in at 3.5%, just slightly lower than the 3.6% expectation. Hourly earnings increased by 0.3% month-over-month, putting average hourly earnings at a 4.2% year-over-year pace.
The ADP private payroll report came in well below expectations, showing 145,000 jobs added against the estimate of 210,000. February’s numbers were revised up to show 261,000 jobs added for the month. When you look at the ADP’s numbers on a year-over-year basis, Q1 2022 added an average of 397,000 jobs with Q1 2023 adding an average of just 175,000. Furthermore, annual pay rose at a rate of 6.9% in March versus 7.2% in February. This is solid evidence for the Fed that their QT measures are working to cool the labor market, slowly but surely.
Earlier in the week, the Labor Department’s Job Openings and Labor Turnover Survey showed job openings fell below 10 million in February. That’s the first time job openings have fallen below that threshold in nearly two years. Forecasts from Wall Street had been calling for 10.4 million job openings. This means job openings, which were outnumbering workers around 2 to 1, fell to about 1.7 to 1.
All of this data led to a seesaw effect on Treasury note yields throughout the week. The JOLTS and ADP data both put downward pressure on Treasury yields. That shifted Thursday as investors digested the data and let the stronger possibility of recession enter the fold. That put some slight upward pressure on yields before the release of the jobs report. The 10-year note yield ended the week at 3.36% to start Friday trading. That’s the lowest it’s been since Sept. 8, 2022. Keep in mind that mortgage rates generally follow the trajectory of the 10-year yield.
Mortgage rates inched down once again week-over-week with Freddie Mac reporting the 30-year fixed-rate mortgage average at 6.28%. While this marks a full month of declines, the moves are very small. This bit of stability, according to some analysts, has helped potential homebuyers realize this is where rates will likely stay for some time making it easier for people who were on the sidelines to jump into the market.
Freddie Mac’s economists note the positive of somewhat lower rates during the historically strong spring buying season, but add “Unfortunately, those in the market to buy are facing a number of challenges, not the least of which is the low inventory of homes for sale, especially for aspiring first-time homebuyers.”
Another lingering issue is the cost of the home itself. While the S&P CoreLogic Case Shiller National Home Price index has shown nine straight months of decelerating home price growth, its readings lag behind by a couple of months. Black Knight’s data shows home prices rose by 0.16% in February nationally. This slight increase can be attributed to the decline in rates we saw to start the year which spurred activity and decreased inventory. It is as simple as supply vs demand and the dwindling supply of homes for sale has perpetuated a strong demand market.