The banking failures have begun to raise hopes the Fed will take a pause in its rate hikes. Now more signs of a weakening economy have added to that possibility, a real possibility the Fed will cease and desist with its obsession that inflation is still out of control. If so, a so-called ‘soft landing’—the economy slowing, but not entering a recession—is possible.
The latest JOLTS report of fewer job vacancies and a shrinking manufacturing sector are two such signs.
“The number of job openings decreased to 9.9 million on the last business day of February, the U.S. Bureau of Labor Statistics reported today. Over the month, the number of hires and total separations changed little at 6.2 million and 5.8 million, respectively. Within separations, quits (4.0 million) edged up, while layoffs and discharges (1.5 million) decreased.”
The gap has therefore narrowed between the number of jobs available (vacancies) and actual hires. There were as many as 11.8 million job vacancies in early 2022.
Another sign of a slowdown is the faltering manufacturing sector. Per the Institute for Supply Management’s manufacturing survey, it dropped to 46.3 percent from 47.7 percent in the prior month. That’s the lowest level since May 2020, when the pandemic slowed down much of the U.S. economy.
The ISM’s service sector has slowed as well from 55.1 but remained positive at 51.2. It has contracted just once in the past 34 months, this past December.
“There has been a pullback in the rate of growth for the services sector,’ said survey director Anthony Nieves, “attributed mainly to (1) a cooling off in the new orders growth rate, (2) an employment environment that varies by industry and (3) continued improvements in capacity and logistics, a positive impact on supplier performance. The majority of respondents report a positive outlook on business conditions.”
And interest rates are finally beginning to decline after their record rise from essentially zero for short-term rates. Falling mortgage rates in particular are boosting the housing market.
The most popular 30-year conforming fixed rate is now down to 5.625 percent for 1 origination point, and 6.0 percent for 0 points for borrowers with excellent credit. That’s a full percentage point drop from its highs.
I reported in a recent blog that housing prices are finally declining in some regions in concert with lower mortgage rates, which has led to an early buying season.
“I’m quite surprised,” Lawrence Yun, chief economist at the National Association of Realtors said. “The recovery is coming stronger, [but] maybe it will deflate again if the mortgage rates get too high… [and] mortgage rates have a very big influence.”
Signs of lower inflation are now cropping up everywhere, which should help the Fed Governors to decide it is a good time for a time out in raising interest rates further.
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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