Market Update: Labor Market Conditions Index, JOLTS, Mortgage Applications, Janet Yellen, Foreclosures, Home Inventory Shortages, Jobless Claims, Consumer Sentiment, Retail Sales, Mortgage Rates

Labor Market Conditions Index
Payroll growth slowed in Friday’s employment report as did the Fed’s labor market conditions index. An increase of 0.4 in January from a downward revised plus 2.3 in December and an upward revised plus 2.9 in November. January’s reading indicates the lowest level of labor expansion since April of last year and also reflects the climbing trends in jobless claims. One big positive for the labor market is the falling unemployment rate at a low 4.9% in January.

The JOLTS report is the Labor Department’s Job Openings and Labor Turnover Survey. Job openings surged in December; this may have increased the surge in the labor participation rate in January. Openings came in at 5.607 million in December well above the revised 5.346 million in November. The openings rate jumped 2 tenths to 3.8 percent compared to 3.4 percent in December of 2015. The quits rate rose 1 tenth to 2.1 percent an indication that workers are moving up to better jobs. The layoffs rate, fell 1 tenth to 1.1 percent in the month, foretelling a decline in the unemployment rate. This report is strong and is a reminder that the labor market continues to move to full employment, the breaking point for wage inflation.

Mortgage Applications
Week to week trends of purchase applications have been varying widely this year; but they are definitely higher. Total mortgage application volume increased 9.3 percent from the previous week; interest rate dependent refinances were almost entirely behind these gains. Applications to refinance a home loan rose 16 percent from the previous week. Purchase applications were also up and rose 0.2 percent in the February 5th week. The year on year rate of purchase applications is significantly higher at a plus 25 percent. Low mortgage rates have been stimulating the activity with the average 30-year conforming mortgage down 6 basis points in the week to 3.91 percent, the lowest reading since April of last year.

Janet Yellen Speaks
Federal Reserve chair Janet Yellen presented the semi-annual monetary report to House Financial Services Committee, in Washington. She stated that the chances of a March rate hike are uncertain at best, but the door is remaining open despite the risk tied to global financial stress. She suggested that the central bank may delay, but not abandon, planned interest rate increases in response to the recent turmoil in financial markets. She emphasized the strength of the US economy and she predicts GDP to pick up in the first quarter after showing a slowing in the fourth quarter of last year. Employment growth is expected to continue and wage pressures are anticipated to rise. This in turn, will result in gains for consumer spending, Yellen predicts. She doesn’t see a reversal for policy ahead, saying she doesn’t expect the Fed will have to cut rates any time soon. Yellen forecasts moderate economic expansion ahead that would warrant gradual rate hikes. On the subject of inflation, she agreed that near term pressures have declined due to low energy prices but she continues to see a rise to the 2 percent target rate in the medium term, strengthened by wages and strength in the labor market.


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