Orion’s brokers know that the United States’ economy is driven by housing and jobs, and so stock and bond markets are driven by news of either. We mention this because on Friday we learned that nonfarm payrolls grew a robust 227K in November, rebounding from an October reading that was depressed due to strikes and hurricanes. But the unemployment rate rose to 4.2% in November, and the underlying details of the household survey were indicative of a labor market that continues to lose momentum gradually.

Although payroll employment rebounded in November with a gain of 227,000 jobs, and the prior months were revised upwards by a cumulative 56,000 jobs, the report overall shows more softening in the labor market. The unemployment rate is now above 4.2%, the household survey again showed a large drop in employment, and more households reported spells of long-term unemployment. Per the JOLTS results from October, the hiring rate continues to decline. The payroll gains continue to be concentrated in just a few sectors, government, health care, and leisure and hospitality.

What does this mean for our broker’s borrowers? Many went into last week’s jobs data think that the employment report would lead to the Federal Reserve’s Federal Open Market Committee cutting the federal funds rate by another 25 bps (another way to think about that is .25 percent) at its upcoming meeting on December17–18. Sure enough, the report from Friday further reinforced this view.

Orion’s brokers know that although the Fed does not set mortgage rates, the same data that drives its decision making moves the bond markets, and therefore interest rates which include mortgage rates. The November employment report signaled hat supply and demand in the labor market has come back into balance. Over the past six months, nonfarm payroll growth has averaged a solid, but not spectacular,143,000 per month.

The separate household survey was underwhelming. The unemployment rate rose by one-tenth of a percentage point to 4.2 percent, the labor force participation rate fell one-tenth, and the underlying details of the survey were indicative of a labor market that continues to lose momentum gradually. Perhaps the only "hot" component of the report was the 0.4% increase in average hourly earnings that pushed the year-ago change for wages back up to 4.0%.

Your clients should know that if the FOMC reduces the overnight federal funds rate by 25 bps at its upcoming meeting on December 17–18, it is likely that mortgage rates won’t move. This expectation is already priced into the market. But the good news is that economists do not think the labor market is positioned to be a source of inflationary pressure headed into 2025.

This week we will receive important inflation data for November from the Consumer Price Index and Producer Price Index, and perhaps unexpectedly hot readings could still derail the FOMC's rate cut plans. Baring a major surprise, the FOMC is oncourse to cut rates next week, but with dubious impact on mortgage rates.

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