Market Recap: Construction Spending Down, Private Payrolls Grow, and Fed Holds on Hiking Rates
Mortgage rates did not move significantly this week, trending slightly upward from last week’s averages. Total US construction spending dropped amidst higher home-building expenditures. The ADP employment report showed the addition of 204,000 jobs, exceeding the market estimate. The Federal Open Market Committee (FOMC) met on Tuesday and Wednesday and voted to hold the benchmark interest rate at the 1.5 – 1.75% range.
Construction spending fell 1.7% month-over-month in March to a seasonally adjusted annual rate of $1.285 trillion, but the year’s strong start suggests the foundation is still strong. Year-over-year spending is up 3.6%. Private sector projects bore the brunt of the declines, with public sector projects virtually unchanged. Residential construction, specifically, was 3.5% lower month-over-month, but 5.3% higher year-over-year. An unseasonably long winter may be the culprit for some construction delays. Buyer demand remains strong, and based on the annual growth, builders expect a busy summer.
The ADP employment report surpassed growth expectations with the addition of 204,000 jobs, even as the labor market tightens. Professional and business services led the gains with the addition of 58,000 jobs, followed by education and health with 39,000 jobs, and leisure and hospitality with 36,000 jobs. Manufacturing only added 10,000 jobs followed by mining natural resources with the addition of 7,000 jobs. Moody’s chief economist Mark Zandi warned that the low unemployment rate could soon lead to repercussions. He explained, “at this pace, unemployment will soon be in the threes, which is rarefied and risky territory, as the economy threatens to overheat.”
The FOMC met Tuesday and Wednesday for its semiannual monetary policy meeting. The Fed is expected to raise interest rates twice more this year but voted to leave rates unchanged following this meeting. One of the most significant takeaways from the Fed’s statement was that “overall inflation and inflation for items other than food and energy have moved close to 2%.” Fed officials consider the 2% rate of inflation to be the threshold to warrant further rate hikes. Good news from the statement included strong growth in business investment and strong corporate earnings.
If inflation continues to run near the targeted rate and job growth remains strong, further interest rate hikes will likely continue. Federal interest rate hikes do impact mortgage rates, but the effect is typically gradual. In the past year, since the FOMC started to raise rates more frequently, the average rate on a 30-year-fixed rate mortgage has increased less than a percentage point.
Sources: Bloomberg, CNBC, CNBC, MarketWatch, MarketWatch, Mortgage News Daily