All Things in Moderation

Vital Statistics:

Stocks are lower this morning after the government shut down at midnight. Bonds and MBS are up.

The government shut down at midnight as funding ran out. Worried about how the shutdown will impact the mortgage industry? The MBA has you covered. Main points:

The shutdown will impact HUD, which means FHA / VA / USDA loans may be slower. Of these three, USDA will be the most affected.

Fannie and Freddie are not government agencies, so the impact there would be limited.

New flood insurance policies will be on hold until the program is re-authorized. The IRS will still honor tax transcript requests.

The private sector shed 32,000 jobs in September, according to ADP. “Despite the strong economic growth we saw in the second quarter, this month’s release further validates what we’ve been seeing in the labor market, that U.S. employers have been cautious with hiring,” said Dr. Nela Richardson, chief economist, ADP.

Education and health services added 33,000 jobs, while leisure and hospitality lost 19,000. Professional/business services and finance also declined. The Midwest bore the brunt of the job losses. Pay growth for job stayers was steady at 4.5%, while the pay growth for job switchers fell from 7.1% to 6.6%.

FWIW, the Street is looking for an increase of 50,000 jobs in Friday’s jobs report, assuming it comes out. BLS has said it will not release the jobs report if the government is still shut down, so this report carries additional weight.

Job openings ticked up slightly in August, from 7.21 to 7.23 million. The quits rate fell from 2.0 to 1.9%, which is further evidence of the “job-hugging” phenomenon where workers hold employees hold onto their current jobs, even if they are unhappy, due to economic uncertainty and fear of the labor market, rather than seeking new opportunities.

The labor market is weakening, and the Fed stayed tight for too long.

Consumer confidence fell in September, according to the Conference Board. “Consumer confidence weakened in September, declining to the lowest level since April 2025,” said Stephanie Guichard, Senior Economist, Global Indicators at The Conference Board. “The present situation component registered its largest drop in a year. Consumers’ assessment of business conditions was much less positive than in recent months, while their appraisal of current job availability fell for the ninth straight month to reach a new multiyear low. This is consistent with the decline in job openings. Expectations also weakened in September, but to a lesser extent. Consumers were a bit more pessimistic about future job availability and future business conditions but optimism about future income increased, mitigating the overall decline in the Expectations Index.”

IMO it looks like the weakening labor market is beginning to affect the consumer confidence numbers.

Mortgage applications decreased 13% last week as purchases fell 1% and refis fell 13%. “Mortgage rates increased to their highest level in three weeks as Treasury yields pushed higher on recent, stronger than expected economic data. After the burst in refinancing activity over the past month, this reversal in mortgage rates led to a sizeable drop in refinance applications, consistent with our view that refinance opportunities this year will be short-lived,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “With the 30-year fixed rate now at 6.46 percent, refinance activity declined for all loan types, including a 22 percent decrease in conventional refinances and 27 percent decrease in VA refinances. The average loan size for refinances dropped to $380,100 from $461,300 two weeks ago as these higher rates eliminated the refinance incentive for many borrowers with large loans.”

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