U.S. Unemployment Claims Jump, Mortgage Rates Fall

In an increasing sign that U.S. workers cannot afford to buy houses as much as they used to, unemployment claims rose as mortgage rates fell, suggesting demand for houses is dropping as employment declines.

In an increasing sign that U.S. workers cannot afford to buy houses as much as they used to, unemployment claims rose as mortgage rates fell, suggesting demand for houses is dropping as employment declines.

The separate reports on the labor market and mortgage rates come from the Department of Labor and government-backed Freddie Mac, a private mortgage corporation, respectively. According to Freddie Mac’s Primary Mortgage Market Survey, 30-year fixed-rate mortgages fell to 3.61% by May 5, down 5% off the 3.8% rate seen a year ago. Both adjustable rate and shorter-term mortgages also had similar declines.

“Mortgage rates are now hovering just above their low point for the year,” the company said in a public statement, confirming previous signs from the Mortgage Bankers Association and Census Bureau that purchasing activity is falling.

Lower expectations for U.S. Treasury yields have also caused declines in mortgage rates, as Freddie Mac Chief Economist Sean Becketti notes. “The Fed’s decision to stand pat followed by a week of assorted unsettling news drove Treasury yields lower.

Therefore, the 30-year mortgage rate drifted down to 3.61 percent, just 3 basis points above the low for the year. Since the start of February, mortgage rates have varied within a narrow range providing an extended period for house hunters to take advantage of historically low rates,” he said.

Higher Joblessness

Cheaper mortgages are not encouraging more home buying, which may be a result of rising unemployment. The Department of Labor reported that initial unemployment claims rose to 274,000 in the last week of April, a surprise jump that also caused the four-week moving average to rise by 0.8%.

While a jump, some economists are dismissing the data as short-term volatility, noting that initial claims have continued a downward trajectory since their highest point in 2009. The failure of jobless claims to decline significantly so far in 2016, however, indicates weak demand for homes and other goods, and services in America may put downward pressure on the economy. In the first quarter of 2016, the country’s GDP grew just 0.5%, far below most economists’ expectations.

Meanwhile, American companies are reporting weak sales growth for the first quarter of 2016. So far, companies who have reported quarterly results in the S&P 500 have seen an aggregate revenue growth rate of 1.6%, excluding energy.

Uncertain Fed Policy

The protracted weak position of American workers and consumers has led more Federal Reserve heads to voice concerns about America’s future. Most recently, St. Louis Fed President James Bullard said in an interview that he remains confused about how American job growth is not translating into slowing economic growth.

In the interview, Bullard failed to discuss the negative wage growth Americans have experienced since 2016. He also failed to discuss a recent report by the U.S. Treasury that the rising use of non-compete contracts for low-paid workers is becoming a headwind to entrepreneurship, wage growth, and employee mobility.

This leaves the future of Fed policy uncertain, with Bullard asserting that he hopes America is not following in Japan’s footsteps, where stagnant wages and virtually zero growth have resulted in what economists call a “lost decade” and “lost generation.”

Bullard: “If you talk to people in Tokyo, they say, ‘Well, we’ve been through this and tried all these things and you guys are just following us.’”