Morning Report: The economy continues to add jobs

Vital Statistics:

S&P futures3,743-59.75
Oil (WTI)86.590.02
10 year government bond yield 3.77%
30 year fixed rate mortgage 6.59%

Stocks are lower as markets adopt a risk-off posture again. Bonds and MBS are down.

The economy added 208,000 jobs in September, according to the ADP Employment Report. Annual pay was up 7.8% on a YOY basis, which will concern the Fed. That said, the pay increase for job changers is beginning to decline. This would comport with the stagnant quits rate we saw in yesterday’s JOLTs report.

The report also noted that it looks like people are returning to the labor market. Demand remains strong from employers. Private employment recently returned to pre-pandemic levels.

The service economy expanded again in September, according to the ISM Services Index, albeit at a slower pace than August. Most of the sub-indices showed declines, although employers still struggle to find employees. The prices index declined as well, which is good news on the inflation front.

“According to the Services PMI®, 15 industries reported growth. The composite index indicated growth for the 28th consecutive month after a two-month contraction in April and May 2020. Growth continues — at a slightly slower rate — for the services sector, which has expanded for all but two of the last 152 months. The services sector had a slight pullback in growth for the month of September due to decreases in business activity and new orders. Employment improved and supplier deliveries slowed at a slightly slower rate. Based on comments from Business Survey Committee respondents, there have been improvements regarding supply chain efficiency, operating capacity and materials availability; however, performance remains less than ideal. Employment continued to improve despite the restricted labor market.”

Higher interest rates continue to depress the mortgage market. Applications fell 14% last week as purchases fell 13% and refinances fell 14.2%. On a YOY basis, purchases are down 37% and refis are down 86%.

“Mortgage rates continued to climb last week, causing another pullback in overall application activity, which dropped to its slowest pace since 1997. The 30-year fixed rate hit 6.75 percent last week – the highest rate since 2006,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The current rate has more than doubled over the past year and has increased 130 basis points in the past seven weeks alone. The steep increase in rates continued to halt refinance activity and is also impacting purchase applications, which have fallen 37 percent behind last year’s pace. Additionally, the spreads between the conforming rate compared to jumbo loans widened again, and we saw the ARM share rise further to almost 12 percent of applications.”

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