On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the jobs report data and the Fed’s new labor indicator.
Related to this episode:
The key to mortgage rates: Fed phone calls? | HousingWireHousingWire |
https://www.housingwire.com/articles/the-key-to-mortgage-rates-fed-phone-calls/
Enjoy the episode!
The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate stories. Hosted and produced by the HousingWire Content Studio.
Related to this episode:
The key to mortgage rates: Fed phone calls? | HousingWireHousingWire |
https://www.housingwire.com/articles/the-key-to-mortgage-rates-fed-phone-calls/
Enjoy the episode!
The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate stories. Hosted and produced by the HousingWire Content Studio.
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NewsTranscript
00:00Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about the
00:10jobs report data and what the Fed is looking at right now to determine what they do with
00:15rates. I want to thank our sponsor, RocketClose, for making this episode possible. Logan, welcome
00:20back to the podcast. USA! USA! USA! Today was good. I just want to say before we go into
00:33this discussion, to all the Russians, Chinese, Iranians, disinformation campaigns, much love
00:41for you guys. We've been doing this for like over 10 years. To the anti-Central Bank movement
00:47who've been clouding themselves for well over many decades, for the labor market to have
00:56held up since June of 2020 with all the shocks that we've had. And we have our own labor triggers.
01:03We believe in models, right? We believe in economic models and tracking stuff and progression models
01:07and how to talk about economics. We're about to enter another phase of the cycle that has
01:13a lot of volatility, maybe an exogenous shock. But until now, the model has all kept up and the US
01:23has outperformed for a reason, right? And today's data, actually, if you took away all the tariff
01:30headlines away, I would be sitting here and go, well, it looks right. I mean, the forecast was 133 to
01:37151,000 jobs per month. We're at 147 post revisions, put everything in. It looks right.
01:44Manufactured jobs were lost. The residential construction workers on a month-to-month basis
01:48was negative. So there are things we need to highlight. But we held up. We did it. As a country,
01:55we did it. So when we all pass away to the afterlife, I just want to remember the American
02:01bears who post-2020 were never bullish, yapped their mouths off all this time. And we're going
02:07to enter another phase, but you don't get to talk about economics anymore. You will be buried in the
02:12ground with the Russians and the Chinese and Iranians disinformation campaign because we did
02:17it as a country out there. You don't get to be a part of this anymore. Done. Finished. One trick
02:23pony. Inverted yield curve. Inverted yield curve. Finished. Done. Go away.
02:28You've drawn your line in the sand. I understand. Okay. So let's talk about this jobs report. So
02:34first of all, do you feel like you say we're entering this other cycle? So this jobs report
02:39is really pre-anything that we can see from the trade war or not? Tell me where we are.
02:45So when you have a shock event, you're going to have to adapt models to what the shock is. And
02:53one of the things that, so our labor triggers have always been residential construction workers
03:00and jobless claims. They have to go up, jobless claims have to head up toward 323,000 forward
03:04moving in. Residential construction workers typically lose their jobs first. We always keep an eye on
03:09manufacturing, but we had a manufacturing recession in 2015, 16. It didn't create a U.S. recession.
03:15We're a consumption-based economy. So if you look at GDP, you know, what the Federal Reserve tracks
03:21is the real consumption data. And it was positive again. So we're going to push forward that. Now we
03:28have, again, a variable that can impact jobs and the price of goods and inflation and shortage. So
03:36it's a high-velocity event. Okay. So assuming Godzilla tariffs keep on going on, assuming we'll
03:43have shortages and everything, we have to adapt to that. But until then, at least the first four months,
03:49everything looked kind of right. This is why we like to write about the jobs reports and show what
03:55we think was going to happen this year. But now we're entering another phase and we'll take it from
04:01there. Because listen, in three days, if somebody says, oh, we're taking all the tariffs off, we're
04:06going to negotiate for a month or whatever, then it changes. And you have to have the ability to adapt
04:12to any kind of high-velocity event. They rarely happen, but we've had a few of them, right? We had COVID.
04:18We had the Federal Reserve go into a complete rate shock into the economy in 2022. And now we have another
04:24one. So we do it accordingly so we could document this and move this forward to see how the economy reacts to
04:32something of this nature. But for the first four months, consumption was held up, labor data held
04:39up. It was good to see. Now we're going to move it to another stage. And I believe the Federal Reserve
04:46is going to use one of the things they've talked about during COVID, that they kind of moved away
04:52from old traditional economic cycle data and used other methods to make sure that if they're labor
04:59overinflation people, that the labor market was holding up during this whole time, not breaking.
05:04Okay. So I want to get into that. But first I want to talk about the residential construction
05:08workers, because that is something that you've flagged that will clearly be an indication if
05:14we're going into a recession, if the economy is changing. So what did this jobs report say about
05:18construction workers? A very, very, very tiny smidge decline. So the specialty trade workers
05:26are already falling. The velocity of that data line, I don't want to get too geeky, is a little
05:32bit more efficient. We always think about the apartment workers and the units completed are
05:39being done. So if there's no permits growing there, that labor is gone. You could say, well,
05:44the LA fires and the Florida hurricanes will provide some cushion for labor during that period of time.
05:50But for now, that was a month to month decline. Okay. So this is something we keep an eye on.
05:56Manufacturing jobs were lost. So those two things typically move with economic cycle. So we're
06:01just keeping an eye on that. It isn't anything big, but again, it's part of the model and we progress
06:06the model going on and forward because we don't believe in setting date targets. We believe in
06:11progression models. Economic never sleeps. Variables change. You have to move with them either positive
06:16or negative, but we flow with that. So that's the thing that we're going to keep an eye on,
06:20especially over the next six to 12 months. Again, 2025, the wild card was the builders,
06:27right? If mortgage rates were above seven and a quarter and staying there at that levels,
06:33we would have probably a little bit more aggressive discussion about that. But for now,
06:38you know, just a smidge, both manufacturing jobs lost, residential, we keep a focus on that going up.
06:44It's so confusing because we have these really bad headlines. We have consumer confidence down.
06:51We have all sorts of things happening. And then we get this jobs report, but from your perspective,
06:55the jobs report isn't surprising because the early indicators weren't breaking yet. So it depends on
07:03what you believe the jobs data should show. So for us, it's 133 to 151,000 per month looks normal.
07:10All the negative revisions, it looks normal. Labor market's slowing down, but it's not breaking.
07:17We're not creating a massive amount of jobs. We're going to get revisions to this report.
07:22Softening and breaking are two different things. This is why we've always tried to highlight this.
07:25But the consumption data held up for the GDP. If you take the trade data import export out of it,
07:31the economy was moving fine. We're entering a different stage that could affect the consumption
07:37data. But for the first, you know, four months, it looks about right. I mean, and one thing is that
07:43the 10-year yield fell and new home sales, for some people outperformed, maybe existing home sales
07:52are holding up. You know, these things are holding up for right now. But, you know, we got to look
07:58forward to what it is. But it's not shocking to us because the early labor triggers did not break yet.
08:06Okay, let's go into what you think this Fed tool that they've used before that they're going to pull
08:12out now. What is that? Okay, so we first talk about why do we have the theory of labor over
08:18inflation? Well, the Federal Reserve in 2022, Jerome Powell said, we like the Fed funds rate to match
08:23core PCE 3, 6, 12 months. This means the Fed funds rate would be at 3% today.
08:30That's what we all thought that meant. But eggnog, Christmas party, that was it. Whole thing
08:37playing. Everything changed. They went full guns of Navarone. They were going to be super restrictive.
08:41So that changed everything for the cycle. But if the labor market, they keep on saying that labor
08:49market, labor market, labor supply, labor market, labor. If the labor market breaks, well, we track
08:53jobless claims. They said, okay, jobless claims. Jobless claims had a spike up. But if you read the
08:58report, it's basically two states warehouse. So the bond market didn't take that report seriously.
09:04But now we're going to a phase to where I think a lot of people forgot this. The Federal Reserve
09:09literally told people at speaking events and everything, you know, the way we used to track
09:14economic cycles, the COVID has messed up a lot of things that we went to another avenue. We
09:19called businesses and just basically said, hey, are you firing or hiring? You know, and
09:24during this whole period of time, they kept on saying, well, businesses are still hiring.
09:29Now we've entered another phase of the economic cycle where they'll say, well, we're not doing a lot
09:35of hirings, but we're not laying off people. See, that was the whole labor over inflation
09:39theory that they'll admit that eventually. So it's like, well, we're not actually doing a lot
09:44of hirings, but we haven't laid off people yet. Yeah, you're waiting for the labor market to break.
09:49Right? So that's the whole thing. So I'm glad they finally like came out in public and said that
09:54because I think some people were like shocked. Well, there's not a lot of hirings, but there's not
09:58a lot of firings. Yeah. The firing variable is different for them. But I anticipate them because
10:05this is such a chaotic event and, you know, trying to get real-time data out there, you're going to
10:11have to go into companies and just basically, hey, what's going on? What's going on? So Fed
10:15president's speeches become a lot more important now because that was the first clue that we got when
10:23they were saying, we're doing a lot of telephone calls because that's basically, we think that's a
10:28more efficient way. Whether you and I agree with that premise or not, that's what they're doing
10:33in the past. So with this type of trade war, right? Because we don't know, we don't know the scale,
10:38we don't know the deals, whatever happens, they will be doing more telephone calls. So maybe not
10:44waiting until a jobs Friday report to get something like that. But jobless claims and telephone calls
10:51to me looks like the more efficient way for them. Because if they start hearing, hey, we're laying this
10:56person, laying this, laying this, laying this, then the labor market breaking for them, that's when
11:01they fold in this regard. I'm still not in the camp that they'll like hike into a tariff. Remember
11:11these one-offs, the Federal Reserve is already at a, what they deem to be modestly restrictive policy
11:18right now. So in this context, hiking is probably not an issue for them unless they go into recession.
11:23Oh boy, the shadow fed would really kick up right about there. But in this case,
11:28speeches can be a little bit more important now because we're not, we don't have quite the data
11:36yet, but the jobless claims it would be the most efficient way. They've used that before. I expect
11:42them to use that a little bit more. I think a lot of people forgot that they brought that up in the
11:46past, but now it becomes a little bit more important for them to use that way of tracking labor
11:53data a little bit more lively than waiting for jobs reports every Friday.
11:58It reminds me of the Beige Book, right? Isn't that the premise there where you call up local
12:02businesses and try to get a feel for things all over the country and what's going on?
12:08Yeah. I mean, we have to remember there's fed presidents in every region. So other regions might
12:13be impacted a little bit more than others. And then they all talk about it. So it gets into a very,
12:21very unique stage after now, because it's really, they're all telling us, Hey, listen,
12:29it's going to be the summer. So it's May. So we're not that far away from that. So I think
12:34on the cycle side, and just for the reason we talk about this is because, you know, for mortgage rates
12:39to really go, I'm not in the growth rate of inflation falling as, as we could all see if there
12:45was no tariffs, the federal reserve would have been done doing the same thing. Oh, we're very close to
12:50neutral. We'd want to maybe cut rates a little bit slowly. They weren't going to be aggressively
12:54cutting rates. A lot of people are saying, Oh, if there was no tariffs, like the federal reserve
12:58did not signal anything like that at all. I don't, it was always, they're going to hold restrict,
13:05they're going to hold policy as restrictive as possible until the labor market breaks. And then
13:09they could be a little bit more dovish. But for now, this is a little bit more interesting for them
13:14because the regional presidents might have a lot different takes. Um, the 10 year yield actually
13:21rose because, uh, the, uh, manufacturing data actually beat estimates. So you can see the bond
13:26market is pricing a lot of weakness that, you know, uh, if things aren't falling apart, yields should
13:33rise for, for me personally, the 10 year yield should be at four 35. Uh, uh, if we don't have any
13:39Godzilla tariffs and then we work off the data like that. So, oh, it gets interesting, Sarah,
13:44this is like the first official, like, uh, authentic, uh, if we're going to go through
13:50with this Godzilla tariffs on what we do with the economy. And again, my premise has always been
13:53saying, I don't even believe in this concept because you know, uh, near 50% of the, uh, uh,
13:59population in America are workers, right? We have 162 million people working. We have
14:04over 340 million people, uh, population wise, but we have a hundred percent net consumers,
14:09right? And of course, babies don't consume. They don't go buy something on Instagram,
14:14but everyone consumes goods and services. So what has been the death kneel of every politician
14:20inflation, right? Everyone thinks they could get away with it, but then inflation comes and shortages
14:25and all my God, people get totally pissed off and mad about that. But so we're entering a stage to
14:30where that is a very big possibility. We see ships not moving. Oh, it's kind of like COVID stuff not
14:36working. Right. And, uh, but again, all of this can change like that. So if you have that capacity,
14:45then you have to adapt to it. If it's something like, like war, uh, where, you know, price controls,
14:52like inflate, we always had inflation during wars because of price controls and production and things
14:57were working properly. So, but this is, this is a trade war that now we're talking about 200 deals.
15:04You know what? I don't know if you think there's like a, like 195 countries.
15:08That's right. There's only 195 countries. You could have multiple deals with countries,
15:13but yeah, so until we see them, until we actually see them sign, we have to just move forward with it
15:18and take it. And again, whenever you have a high velocity event every day, every week, you got to find
15:23those clues, right? Mother economics, Sarah, I know you don't like me saying this, but mother economics,
15:28she is a serial killer. She wants to get caught. All serial killers want to get caught. She will
15:35leave you crumbs. Okay. So it's our job to always be the detective, not the troll. Right. And that's
15:42how it's worked always since the Peloponnesian war, Sarah, really, because if economics is done right,
15:48it should be boring. Not this fun, hot, sexy thing, but we're going to look for the clues of crumbs and
15:52take it from there. We just got like five Logan isms in like, I am, I am happy today. I was just
16:01like, I saw that report and just like, was of course me, we're just talking trash to all the
16:06bearish Americans and the Russians and the Chinese and the Iranians out there. So just my love for you
16:10all. I love it. Um, uh, it's, it's good to hear all those Logan isms come in like that. Just,
16:18just warms my heart. I know if, if people have bingo cards out there, they're like, man,
16:21I just got five or six. So tell me what you're looking for on the tracker this weekend, right?
16:26We're, we're recording this on Friday. We go live on Monday. Okay. So with the tracker again,
16:32whenever we have a holiday around a weekend time, um, like Easter holiday, it always messes up the
16:37data. So, uh, we're anticipating, uh, kind of a rebound in sales or rebound in new listings,
16:43right? Remember 70 to 80% of sellers or buyers and new listings data took a big dive last week.
16:49And that was, you know, uh, Easter holiday related sales dipped up. Now part of that I believe is,
16:55is, is mortgage rates have gone up, but sales should rebound and, uh, new listings data should
17:00rebound. Active inventory should grow. So, uh, if we keep the same theme going, um, inventory growth,
17:08positive, new listings data is positive. We're getting close to that 80,000, 80 to 110,000 in,
17:14from 2013 to 19. That was like the norm. It was really 80 to a hundred thousand, but we did have
17:20some prints at 110,000, uh, new listings again, during the housing mobile crash years, this thing
17:25was running at 250 to 400,000 per week. Right. And again, the, the grifters of society do not have
17:32this data line. This is why their price crash calls are wrong. These are not serious people.
17:37Um, but in any case, uh, we should get 80,000 plus this year. Uh, uh, purchase application data has
17:46been positive. Like, I think I might've counted it wrong. It might be 14 consecutive weeks in a row,
17:52uh, a year over year, not 13, but in this context, if you have more people who are sellers that are
17:58buyers, the new listings data should grow back to normal, right? We should get into that. Now we're,
18:03we're as a total aggregate, we're still lower than what we were pre COVID, but it is good to see
18:09because the last two years, remember, it's not shocking that 2023 and 2024 were record low levels
18:16of sales. There were also record low levels of new listings, uh, in the history, right? So we have a
18:21lot more people. We have a lot more households. So we want to see new listings data get back. We want
18:25to see active inventory grow out there. Uh, all this is positive. Uh, K Schiller index, uh, last week
18:32came a little bit hotter than my price forecast, but I think things should cool down. So it looks
18:37good. I, this is good. This is, this is the housing market that I wanted to see really in 2023 to get
18:44balanced. We didn't get it then, but 2024 was looking promising. Remember housing is going to
18:48be here for decades and decades. Millions of people are going to buy homes every year. Um, but the fact
18:53that with all the headline, all the drama, elevated rates, purchase application data has been positive
19:02year over year since like the start of the year, nothing spectacular, but positive, right? We're
19:08getting new listings data back to normal, positive active inventory is growing, positive price growth
19:13is cooling down positive. These were all like the inventory was such a negative story in late 2020
19:20and early all the way to early 2022. Not, not a healthy housing market, but this is what a
19:24healthier housing market looks like out there. This is the whole concept of team higher rates in
19:29February of 2021. Like, like we need, we need to cool this down or else things could get out of,
19:35things got out of control. But imagine if home prices just rose 4.6%. That was the whole model.
19:41We created, we created a whole model for years, 2020 to 2024, because this was the period of time
19:46I've been waiting for. So 4.6% nominal real home prices. Isn't that big would have been a much
19:51different marketplace. But when you break to all time lows in inventory with demand at pre cycles
19:57highs, the supply and demand equilibrium, if you believe in the purity of economics and math facts
20:01and numbers and how beautiful it is, that is not a good thing. Okay. So this was like, Oh no,
20:08this is not healthy. So, uh, all positive. We're hoping we see that, uh, uh, new listings data come
20:14back, sales come back. And then we just kind of roll with it. We're, we're getting toward the
20:17seasonal peaks of a lot of the, uh, uh, demand data lines. And then we'll operate with a different
20:24marketplace, uh, the second half of, uh, 2025. And we'll see what happens with the economic trade
20:29wars. Last year at this time, mortgage rates had peaked and they're starting heading lower toward,
20:35uh, the summer months. Uh, that is when the forward looking demand got better. By the way,
20:40nobody talked about it last year either. Oh my God. This house in Florida is down 30% since 2022.
20:49Y'all just don't ballplayers. That's the problem. None of you people care. You're all sorry.
20:55Literally. Oh, how do you live once you live once this life and you're rolling with this crew.
21:02Jesus. In any case. Okay. So, so when we look at, uh, one of the things that I've noticed when you,
21:08when you, um, when you're showing your charts on the tracker, is that compared to last year,
21:13the year before, like we really, this spring housing season really had some traction. I mean,
21:18again, little bit, but as opposed to last year where I think you had to call it in April or,
21:23or at the end of March that. So the last two, actually the last two years, uh, I've already
21:28called for the peak of sales, uh, monthly prints, right. I said, okay, that's it. Uh, you know,
21:34I think it was February in, uh, uh, February, March for both, both the last two years,
21:39because the forward looking data was negative and rates went up. So, uh, it said, unless rates
21:45really fall back down, we're not, we're not going back. And they were both correct. Both those were
21:49the peaks of sales here. It's a little bit different here. It's like, you know, um, it has been so long
21:56since I've been able to say 13 to 14 weeks of positive purchase application. But, uh, the forward
22:02looking data is are holding up. That means there's a potential. If mortgage rates had gone towards
22:076%, that's all we need. Everybody, everybody's forecast would be wrong. If, if we had trended
22:14lower and 6% and let, let me, let me tell you this, everybody would have been wrong and everybody
22:19wouldn't have focused on it either. Why? Cause we've always said this. There's not a lot of people
22:24experience in tracking forward looking data and they focus too much on the low volumes, not to talk
22:30about the demand curve changing. So we're, we had near 5 million total home sales, 2023, 2024.
22:36We're going to have near 5 million total home sales in 2025, but there was a potential to actually
22:42break through that. Right? So let's say hypothetical 4.4 million existing home sales, 700,000 plus 5.1
22:50millions. That would be a deviation break a little bit from the last two years, nothing spectacular,
22:54nothing great, but it shows you that there's demand there. Now I could, I could cop out and say the easy
23:01answer. Well, if we had sub 6% mortgage rate sales ago, yes, the builders have shown us this. They're
23:06at 2019 level still. Uh, but we have to work, we have to work in a realm that were fed policy. Remember
23:1265 to 75% of where mortgage rates can go as fed policy. They're not there yet. Uh, uh, so, but it is,
23:19it is, it is very encouraging this year, uh, than the last few years to show that even with elevated
23:26rates, even with trade war headlines, even with all this purchase application data for existing
23:31homes has still been positive. Uh, the builders purchase application data, right? They had positive
23:37month to month and week to week. Now they don't have a week's weekly data lines. They have a monthly
23:41data lines, but this is again with rates elevated, just get down toward that six and you have duration.
23:47Duration is the key to everything. You get down with duration. You got something just, we're just,
23:53we just don't have monetary policy to facilitate that right now. Well, and, uh, we have the volatility
23:58on the, you know, like you said, with the trade stuff, we all know it could happen. It could change
24:02on a dime and no one. The real, the real negative aspect for the trade war is similar to what the
24:10Silicon Valley banking crisis was. It's just a smaller version. Silicon Valley banking crisis pushed the
24:14spreads up 50, 60 basis points really from the low. So unfortunately that was the only reason we had
24:218% mortgage rates that year. Spreads have gotten worse, not as bad made 20 to 25 basis points, but
24:26still, you know, we could have been near, you know, six and a half easier, but, uh, today bond yields
24:34went up as they should have, you know, uh, and, uh, mortgage pricing, hopefully the spreads compress a
24:39little bit when these yields rise to limit the damage. And we take it from there and we just
24:43track this stuff weekly. Boy, it's exciting. It is exciting Wheeler. But today was like one of those
24:49days. I was just thinking back to 2020 and how every recession call, everything, especially those
24:55that said October of 2023 birth date models, this, that didn't work. None of it worked. Stop fool.
25:04Stop pretending you're anyone at an analyst or economist or anybody. It did not work. So now
25:10we go into the next stage. We got to adapt to it. Right. Uh, uh, that's, we cannot hold any biases
25:17on what we want to see happens. We go with the data, but all the honey badger labor market, the United
25:22States of America. Oh God, it felt good. It felt good since 2020. That was, that was a good one.
25:30The honey badger labor market. That's what, that's, what's just been the engine that has
25:34been driving stuff. So Logan, so, so thankful to have you on today. Thanks for me. I know you had
25:40like four interviews before this, uh, with other, you know, with, I don't know, Bloomberg,
25:44CNBC, whatever. So glad you're here with us, guiding us through it. And we will talk again soon.
25:50Have a good Monday, everyone.
26:00Bye.