Morning Report: Cracks are forming in the labor market

Vital Statistics:

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.

12 Responses

  1. Garland’s DOJ and the FBI have done it again. Clearly they are targeting and attempting to intimidate anti-abortion activists with over-the-top charging and arrest tactics.

    How proud Biden voters must be!


  2. I can’t discuss politics here any longer but I’m wondering as a non-political question if any of you, especially Brent, know anything about Breakthrough Energy? It looks like it’s essentially an investment company supporting new technology to reduce greenhouse emissions.

    Some of you might remember that our youngest daughter was the Golden Girl at Schools of Mines and got the plum job in oil and gas at Anadarko in Denver about 10 years ago now. She has moved up the ladder even after the transition to Occidental. She always has a footprint in environmental issues and is working on carbon capture and sequestration right now.

    The company I mentioned above has invested in a start up who offered her a job in new green technology, right up her alley, but we don’t know much about the investors……………..if anyone has any insight I’d love to hear about it.

    She’s meeting with her investment lawyer tomorrow but I just wondered if anyone here knew anything about the investment group???


    • looks like a private equity fund that focuses on green energy. That is all I know


    • I know nothing about it but I expect your daughter is smart enough to distinguish between what has an immediately profitable future (carbon capture, sequestration, potentially other clean fossil fuel technologies) and the things that are attracting a lot of snake oil (right now). I wouldn’t know a company with a real revolutionary battery technology and a company full of bullshit if my life depended on it though.


    • I have nothing to add, but I hope it ends up working out for her whatever she decides.

      I would note that some of my best career choices have been passing on certain job opportunities and staying where I was at. I avoided a tech company that ended up going bankrupt in the bust that way.


    • Thanks everyone…………….just wondered if there were any red flags I might warn her about……………..not that she needs my advice anymore! 😉


    • I don’t think have to disclose who their investors are, and funds generally avoid doing that. So I have no idea.

      My guess is that they get a lot of ESG money, which is helpful because they don’t care if the fund makes money or not. Not like a hedge fund where fast money pulls out after a down quarter.


      • Thanks Brent, the more I learn the more I think she should take the job. She’d be giving up some stock options and a bonus in March that would total minimum 250K but it’s kind of an opportunity of a lifetime so I think she’s going to do it! I can’t say much because she signed an NDA and it’s all very stealthy. When I get permission to talk about it I’ll let you know the details.

        Very excited for her and all the hard work she’s put into her career in an industry she doesn’t love, but loves her job.


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