November 07, 2022 – Last week there was more evidence of an economy that continues to slow. The economy added more jobs, but it was the slowest pace of growth in the past two years. Construction jobs remained relatively flat and single-family construction continued trending down declining for the 4th consecutive month. The 30-year FRM dipped from the previous week, to just below 7%, but mortgage applications remain depressed and declined for the 6th consecutive week. Lastly, the FOMC approved its fourth 75 basis-point rate hike as it continues its battle inflation but indicated they might be slowing the pace of the rate hikes by their next meeting.
Total construction spending inches up despite single-family residential spending trending down: Total construction spending in September rebounded by 0.2%, pushing the year-to-date comparison over last year ahead by 11.4%. September’s gain was aided by a modest gain in nonresidential construction spending and a moderation in residential spending which remained unchanged after falling the previous 3 months. That said, residential spending was largely held up by multifamily spending and home improvement spending which increased 0.3% and 2.9% respectively, while single-family spending mostly offset these gains by dropping 2.6%. Single-family spending has now declined for the 4th consecutive month as the ongoing rise in financing costs continue to weigh on construction activity.
Fed approves fourth 0.75-point rate hike: While the Fed approved a 0.75-point rate increase in its federal funds target rate for the fourth time this year, they signaled it might be the last of that magnitude. The latest increase shifted the target range to 3.75%-4% – this is the highest level since January 2008. That said, while the Federal Open Market Committee (FOMC) continued with its most aggressive pace of monetary policy tightening since the early 1980s (the last time inflation ran this high), they hinted in their report to a potential change in policy by stating the time to slow the pace of rate increases may be coming. There is little if any expectation that the rate hikes will halt anytime soon, so the anticipation is for a slower pace of increases but remains dependent on the pace of inflation.
Mortgage applications continue downward trend for 6th consecutive week despite slight drop in rates: Total mortgage applications for the week ending on October 28 dropped 0.5% from the week prior on a seasonally adjusted basis. Purchase applications decreased 1% from one week earlier and are now running 41% behind the same time last year. Meanwhile, refinance applications saw a slight uptick of 0.2 percent from the week prior as rates dipped slightly, though they’re still running 85% behind last year. According to Freddie Mac’s weekly survey, the 30-year fixed-rate mortgage (FRM) averaged 6.95% as of November 3. This was a slight decrease from it’s 7.08% averaged the week prior. Nevertheless, rates continue to hover around 7% and with the Fed’s latest rate hike and another one pending by the end of the year, rates are likely to remain elevated and keep many buyers sidelined.
U.S. employment grows at slowest pace since December 2020: According to the nonfarm payrolls survey, the U.S. economy added 261k jobs as hiring remained strong in October. However, despite the broad- based gains, this was the slowest pace in job growth in nearly 2 years. Construction employment was roughly flat. In addition, the household survey showed sings of deterioration in the labor market – actually declining by 328k jobs for the same month. The survey also showed labor force participation rate dipping back to where it was at the start of the year, which nudged the unemployment rate slightly higher to 3.7% from 3.5% the month prior. Although demand for labor remains elevated, the very first cracks are starting to show in diverging messages between the employer and household labor market surveys conducted by the Bureau of Labor Statistics each month.