Current situation of the US financial market - The labor market is stable, while the housing market is experiencing differentiation
The overall labor market in the U.S. is stable. Short-term data is distorted due to the holiday season. The Federal Reserve's interest rate hikes and the soaring mortgage rates have put pressure on the housing market.
The job market is solid.
As of September 12th, the number of first-time unemployed claims in the United States decreased by 10,000, and the adjusted figure was 196,000, reaching a new low since mid-July and lower than the market's previous expectation of 208,000. However, this data decline is not a significant improvement in the employment market, it is mainly due to the seasonal adjustment bias caused by the Labor Day holiday.
The employment data statistics before and after holidays are prone to fluctuations. To clearly understand the true trend of the labor market, four-period moving average data is more informative. This core indicator that smooths out weekly fluctuations has recently decreased only slightly by 2,750 to 203,250, which is roughly the same as the figures from August and September. Therefore, the overall labor market in the United States remains stable.
The number of people continuing to claim unemployment benefits has decreased. The data for the week ending September 5th dropped to 1.73 million. The intensity of layoffs by enterprises has weakened, the growth rate of the labor force has slowed down, the number of retirees has increased, and the immigration policy has tightened, all of which have led to a contraction in the labor supply and further stabilized the employment level. At the same time, the willingness of enterprises to recruit is not strong. The rising inflation pressure and various uncertainties have made most enterprises cautious and reluctant to blindly expand their recruitment scale.
The Fed's interest rate hike has taken effect.
The Federal Reserve raised interest rates by 25 basis points for the first time since July 2023 in September this year. The overnight benchmark interest rate range was adjusted to 3.75%-4.00%. The stable labor market has given the Federal Reserve ample room to adjust its monetary policy. Now, it no longer prioritizes maintaining employment stability but is fully committed to combating inflation. The rising prices of commodities have pushed up the overall inflation level in the United States, which has become the core risk in the current U.S. financial market.
Fed officials have repeatedly stated that the current U.S. labor market is performing strongly, and the unemployment rate is basically in line with the level of full employment. The stable employment data allows the Federal Reserve to disregard the impact of interest rate hikes on employment and take bold measures to tighten monetary policy and suppress inflation. The borrowing costs in the United States are likely to rise largely in the coming months.
Mortgage interest rates soar.
Since the outbreak of the conflict in the Middle East, the 30-year fixed mortgage rate in the United States has soared by nearly 100 basis points, reaching an average of 6.95%. High mortgage interest rates have directly dampened the confidence in the real estate market. Data shows that in September, the confidence of residential developers dropped to an all-time low. In addition to high interest rates, the shortage of construction labor caused by the tightening of immigration policies, and the increase in building materials prices due to import tariffs, have further reduced the profit margins of real estate companies.
The number of multi-family housing starts plummeted by 22.5% in August, and residential investment has shrunk for five consecutive quarters. The secondary housing market is also lukewarm. The number of purchase contracts of existing houses rose by only 0.3% in August, a sharp drop of 4.7% year on year, which suggests weak market demand.
The capital market was a little volatile.
In the face of the combined impact of interest rate hikes and geopolitical conflicts, the overall performance of the U.S. capital market remained stable. Although there were concerns about the continuous escalation of the conflict in the Middle East, oil prices slightly declined, stabilizing the sentiment in the U.S. stock market. The stock market achieved a slight increase, and oil prices remained at a high level above $100 per barrel. The U.S. dollar weakened slightly against a basket of currencies, and the ten-year U.S. Treasury yield fell from the previous peak of above 5.0% to 4.947%.