LIVE MARKETS-Hump-day economics: ADP, jobless claims, mortgages

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HUMP-DAY ECONOMICS: ADP, JOBLESS CLAIMS, MORTGAGES

Wednesday brought with it mixed labor market data, fixed mortgage rates flirting with 7% and, consequently, dropping mortgage demand.

Private employers increased their headcount by 122,000 last month, according to payrolls processor ADP USADP=ECI.

That's a 16.4% decrease from November, and 13,000 fewer than analysts expect the Labor Department's Private Payrolls number to show on Friday.

But the record shows that ADP's National Employment index has a spotty track record when it comes to matching government data.

"ADP is not always a good predictor of the official BLS number," says Carl Weinberg, chief economist at High Frequency Economics. "We use it only to gauge the big picture."

"Right now, that picture is one of still substantial increases in jobs by a fast-growing economy but a slowing trend in job creation," Weinberg adds. "Today’s figures do not upset that trend."

But anyone looking for evidence of labor market softness would likely be disappointed by the latest jobless claims report.

Next, 201,000 U.S. workers joined the queue outside the unemployment office last week USJOB=ECI, according to the Labor Department.

It marks the lowest number of initial claims since February of last year.

That amounts to an unexpected 4.7% drop, defying the 3.3% increase analysts expected. And the underlying trend is downward, as expressed by the four-week moving average of initial claims.

While it's generally bad manners to be disappointed in shorter unemployment lines, this is not exactly the sort of report that's going to rush the Fed into further rate cuts any time soon.

Even so, Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics thinks the claims data is distorted by seasonal noise.

Most forward-looking indicators continue to point to an increase in jobless claims ahead," Tombs writes, adding that "initial claims will rise to about 250K by the end of Q1, placing pressure on the FOMC to continue easing policy."

In fact, ongoing claims USJOBN=ECI, reported on a one-week lag, increased by 1.8% to 1.867 million. This suggests it's taking longer for laid off workers to find suitable replacement gigs.

That's a notion supported by Tuesday's JOLTS report, which showed a hiring slowdown.

Pivoting to the housing sector, the cost of financing home loans edged higher last week, and would-be homebuyers weren't having it.

The Mortgage Bankers Association (MBA) shows the average 30-year fixed contract rate USMG=ECI gained two basis points to 6.99% brushing up against 7% and reaching its highest level since July.

As a result, applications for loans to purchase homes USMGPI=ECI dropped 6.6%, handily offsetting a 1.5% increase in refi demand USMGR=ECI.

"Applications decreased last week as rising mortgage rates continued to discourage buyers from entering the market and put a damper on purchase activity," writes Joel Kan, MBA's deputy chief economist. "Purchase applications declined for both conventional and government loans and dropped to the slowest weekly pace since February 2024."

The 30-year fixed rate is now 18 basis points hotter than the same week last year.

Over the same time period, applications for purchase homes and to refinance existing mortgages are down 14.1% and 5.7%, respectively.

(Stephen Culp)

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