Stocks are lower and Mortgage Bonds are rallying after ADP released their Jobs Report, showing continued weakness in the labor market.
Three out of the last four months are now showing negative jobs, all the while, several Fed members have been saying that the labor market is solid…real solid, solid as a rock. The Fed members that have been saying the Fed needs to get ahead of labor market weakness are looking very smart.
ADP Employment Report
The ADP Employment Report showed that in September, 32,000 jobs were lost, which was much weaker than estimates looking for a gain of 50,000. Additionally, August was revised lower by 57,000 to -3,000. Job growth has been negative three out of the last four months and the weakening of the labor market is clear.
Small and medium sized businesses shed jobs, while large businesses added 33,000. Both service-providing and goods-producing jobs showed losses, with services leading the way with -28,000.
Looking at the sectors, seven of ten showed losses, and the only one showing strength was Education/Health Services, which is not market sensitive and where most of the job gains have been coming from over the last year.
Wages for Job Stayers or those staying in their current job rose 4.5% year over year, which is a slight increase from 4.4% in the previous report, but they have been on a downward trajectory.
Job Switchers, or those changing jobs, saw a big deceleration in wage gains, dropping from 7.1% in August to 6.6% in September. This also shows a lot of weakness, as there is less poaching from other companies with higher pay.
The trend of job growth is clearly lower:
After the release, odds of a 25bp rate cut in October rose to 100%, while odds of a December 25bp cut rose to 92%.
After President Trump removed Erika McEnterfer from her job as the head of the BLS, he had nominated E.J. Antoni as her replacement. It now appears that his nomination has been revoked, and they plan on announcing someone else in the near future. This is something to keep an eye on, as it will have an impact on some of the most important economic reports we receive and the public’s perception of data credibility.
Government Shuts Down
Very early this morning, the US Government shut down. The length of the shutdown will determine the impact, but this is a full shutdown similar to 2013, unlike the shutdown in Trump’s first term, which was partial.
The CBO estimates that there could be as much as 750,000 furloughed employees, and private government contracts may not get paid.
The shutdown has a big impact on data. The BLS Initial Jobless Claims report tomorrow and Jobs Report on Friday will be delayed, so today’s ADP report has even more significance and for now is the de facto Jobs Report. Other reports from the BLS like the Consumer Price Index and Producer Price Index would also be affected, depending on the length of the shutdown.
Additionally, reports from the BEA like Personal Consumption Expenditures and the Census Bureau could also be delayed.
The last time there was a full shutdown was 2013 and it lasted 16 days. While that doesn’t sound that long, the CBO estimates that it caused GDP to be lower by 0.6% on an annualized basis. The CEA estimated that it cost the US 120,000 private sector jobs. While these are not great things, the silver lining is that slower growth and weaker jobs do help mortgage rates.
The shutdown could also impact the mortgage industry – VA, FHA, and USDA loans could be delayed. And any mortgages that require FEMA flood insurance could be impacted as well.
Mortgage Applications
The Mortgage Bankers Association released their application data for last week, showing that purchases were relatively flat, down 1%. They are still up 16% year over year.
Rates increased last week, and according to the MBA, rose from 6.34% to 6.46%. And with the rate sensitive nature of refinances, they fell 21%. Refinances are still up 16% year over year and the volume was still the third highest since 2022…with the previous two weeks being much higher.
With rates starting to move lower again, thanks to some weak jobs data from ADP, application data next week could show more strength.
Technical Analysis
The charts are always important, but with the Initial Jobless Claims and Jobs Report from the BLS now being delayed, they will have even greater importance this week.
Mortgage Bonds are moving higher this morning after the weaker data from ADP and are now starting to break above the 25-day Moving Average ceiling after a failed attempt yesterday. If this break is confirmed, there is almost 40bp of room to the upside until the next level of resistance.
The 10-year has broken back beneath its 25-day Moving Average after failing to close beneath it yesterday and has even gotten under 4.126%. If this move holds, the next stop is 4%.
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