JOLTS, PMI, mortgages: Fed cleared for soft landing?

JOLTS, PMI, MORTGAGES: FED CLEARED FOR SOFT LANDING?

Data released on the market's second day of the year seemed to give the Federal Reserve yet another green light to get on with its hinted-at rate cut pivot.

The number of unfilled U.S. jobs unexpectedly fell by a modest 0.7% in November to 8.79 million, the measure's third straight decrease.

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS) (USJOLT=ECI), which tracks labor market churn, also showed hiring decreasing and firings essentially holding steady.

The quit rate, often considered a barometer of consumer expectations, pulled back.

Signs of some softness will be welcome news to Powell & Co, who believe a tight labor market and the resulting hot wage growth stands as an obstacle toward bringing inflation down to their average 2% target.

"The job market is cooling as illustrated by fewer openings," writes Jeffrey Roach, chief economist at LPL Financial. "We should see confirmation of that in this Friday’s jobs report."

"Important metrics to track this coming Friday include the flow of individuals entering the labor force and the ratio of part-time workers to full timers," Roach adds. "The Fed is likely in a sweet spot as they prepare markets for an upcoming cut in rates."

Here's a look at job openings and wage growth:

Turning to manufacturing, the rate at which activity decreased at U.S. factories eased a bit more than expected in December as the sector eyeballs a 2024 recovery.

The Institute for Supply Management's (ISM) purchasing managers' index (PMI) (USPMI=ECI) added 0.7 points to 47.4, a bit less gloomy than the 47.1 consensus.

Even so, it marked the index's 14th consecutive month below the magic level of 50, the dividing line between contraction and expansion.

Beneath the headline, while new orders and backlog deteriorated, employment improved and the prices paid component - an inflation predictor - cooled at a faster than expected pace.

Going forward, "declining borrowing costs as the Fed begins its pivot towards rate cuts in mid-2024 should help limit the downside to business investment, and a weakening dollar will help support export orders as goods become relatively less expensive abroad," says Matthew Martin, U.S. economist at Oxford Economics.

"However, we expect these will be more than offset by a contraction in goods consumption in the first half of the year as still-high interest rates and tight lending conditions weigh on demand for big ticket items," Martin adds.

Remarks by survey participants were a mixed bag. For every "order intake has picked up" and "demand is up across the board," there's a "business is slowing" and "higher financing costs have diminished demand."

Last but not least, demand for home loans slid over the last two weeks as the cost of borrowing inched higher, according to the Mortgage Bankers Association (MBA).

The average 30-year fixed contract rate (USMG=ECI) hit a bump in its way down the hill, rising 5 basis points to 6.76%.

Would-be borrowers found the uptick most unwelcome.

That was enough to prompt a 7.6% decrease in applications for purchase loans (USMGPI=ECI) and a precipitous 18.1% drop in refi demand (USMGR=ECI).

The MBA data was adjusted for the holidays.

Mortgage rates, which spent four-and-a-half months north of 7%, only dipped back below that level in mid-December and until last week, logged nine consecutive weekly declines.

"The recent decline in rates has given the housing market some cause for optimism going into 2024, but purchase applications have not yet picked up in response, with the overall level of purchase activity 12 percent lower than a year ago," says Joel Kan, deputy chief economist at MBA.

"The housing market has been hampered by a limited supply of homes for sale, but the recent strength in new residential construction will continue to help ease inventory shortages in the months in come," Kan adds.

Overall mortgage demand is about 6% below the same week last year, a gap that's narrowing due to easier comparables:

(Stephen Culp)

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