Weaker-than-expected private payrolls data for March has increased concerns that the Federal Reserve’s rapid interest rate hikes may push the US economy towards a recession. However, a possible recession could bring positive news for interest rates and mortgage rates in the mortgage industry. The ADP National Employment report revealed that US private employment rose by 145,000 jobs last month, the market was forecasting a rise of 210,000, adding to signs of a cooling economy.
As concerns about the economic outlook grow, the market has started to bet that the Federal Reserve will pause its interest rate hikes to prevent a recession. The current odds of a 25-basis point interest rate hike have fallen to 39.2%, according to CME Group’s Fedwatch tool. Traders’ bets of a pause by the Fed in May shot up to 60.8%. Although the weaker payroll numbers could be an indication of a slowing economy, investors are watching closely to ensure that the US does not fall into a deep recession.
While weaker payroll numbers could cause a recession, it would be good news for interest rates and mortgage rates in the mortgage industry. The current economic climate has resulted in growing concerns about the worsening economic outlook following recent turmoil in the banking sector. As a result, market expectations have shifted in favor of the US central bank hitting the brakes on its interest rate hikes.
The recent payroll data has caused major technology and growth stocks such as Meta Platforms Inc, Tesla Inc, and Amazon.com Inc to slip between 0.3% and 1.4% in early trade. Nvidia Corp was among top drags on the S&P 500, down 2.2%, after Alphabet Inc’s Google said the supercomputers it uses to train its artificial intelligence models were faster and more power-efficient than comparable systems from the chipmaker. Defensive stocks such as healthcare, utilities, and consumer staples were in the green among major S&P 500 sectors. Keeping the Dow Jones afloat was a 3.2% gain in Johnson & Johnson after the company’s $8.9-billion offer to settle talc-related lawsuits gained support of thousands of claimants, easing an overhang on its plans to list consumer health unit Kenvue.
Overall, the weaker payroll numbers are a cause for concern in the short term, but they could lead to a more favorable economic environment for the mortgage industry in the long term. While investors will be watching closely to see if the US economy falls into a deep recession, a pause by the Federal Reserve on interest rate hikes could provide much-needed relief for the industry.