Data released last week for the U.S. economy shows that the labor market is gradually slowing down. However, while the job count declined from the prior month, the March report was still strong overall. Wages inched up from a year ago at the slowest pace in 20 months, and labor force participation rose to the highest level since March 2020, while unemployment rate dropped to 3.5%. The jobs report, while delivering some good news on the inflation front, could be just enough to prompt the Fed to raise the fed funds rate by an additional 25bps in their next meeting in May. Lastly, while consumer confidence in the housing market bounced back, it remained near historic lows, which suggests that the market will likely see a more gradual recovery as it enters the spring homebuying season.
Consumer confidence in the housing market remains near historic lows: After dipping briefly in February following a streak of three consecutive monthly increases, the Fannie Mae Home Purchase Sentiment Index® (HPSI) bounced back by 3.3 points in March. The monthly uptick pushed the headline index to 61.3 and 11.9 points closer to the year-ago level. While four of the six components of the index – including perspective on home-selling conditions and consumers’ sense of job security - showed noticeable improvements month-over-month, a large majority of consumers continue to believe that it is a bad time to buy a home. This is what’s keeping the overall consumer confidence in the housing market to be near historic lows and could result in home sales remaining subdued in the coming months.
Mortgage applications dip despite lower mortgage rates: According to the Mortgage Bankers Association’s (MBA) Market Composite Index, mortgage application volume decreased 4.1% on a seasonally adjusted basis and 4.0% unadjusted during the week ended March 31, compared to the week ended March 24. Applications for both home purchases and refinancing dipped after increasing for four consecutive weeks, despite mortgage rates trending lower. With home prices softening and rates declining in recent weeks, buyers’ purchasing power should continue to improve and will likely bring more buyers back into the market. Low inventory of homes for sale, however, will continue to be a challenge as we enter the traditional spring homebuying season.
Hiring in the U.S. economy is slowing but not collapsing: After a couple of strong job reports in the last two months, the labor market continued to advance at a solid but slowing pace at the end of the first quarter. While the U.S. continued its string of 27 consecutive monthly increases in March and added 236,000 net new jobs, the gain was the smallest in over two years. The job growth, nevertheless, was strong enough to lower the unemployment rate to 3.5% from 3.6% in February. Meanwhile, the labor force participation increasing for the fourth consecutive month to a new post-pandemic high of 62.6%. Wage growth inched up but continued to cool, with the average hourly earnings growing 4.2% over the past year, the smallest since July 2021. With roughly 4.1 million more job openings than workers seeking employment, the path toward improving prices remains gradual, however.
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