Good Afternoon!
I hope you enjoyed the beautiful Colorado weather this weekend. We spent a lot of time at the pool and with some friends. We made our usual pit stop at my office on Pearl St. so my son could enjoy his ice cream from the Farmer’s Market before it melts all over his shirt!
Last week was another crazy and volatile week in the bond/interest rate market. We were on an amazing path during the important “Jobs Week,” and all signs were pointing to a sub-par BLS Jobs Report on Friday and then WHAM! It came in over expectations and instead of the 10 YR going to 4.21%, we slingshot back up basis points to 4.51%. It goes to show you that the market is more focused on the jobs market right now than it is on the inflation data. More on this below, but the job report beat expectations by a whopping13k. Expectations were for 126k in jobs added in May and we received 139k. Meanwhile, the past two months (April and March) were revised down by a total of 138k. Essentially, no net jobs were technically added when you factor in those revisions, yet both the stock and bond market acted like it was the biggest jobs gain in a decade. Unfortunately, this is the market we live and trade in, so nothing we can really do besides be patient and hope the revisions catch up and we start to see lower rates.
NO NEWSLETTER NEXT WEEK – SUMMER BREAK FOR MY KIDS
10 Year Treasury Chart:
Last Week’s Market Commentary:
BLS Jobs Report Headline Misses the Bigger Picture
o May’s Jobs Report showed 139,000 new jobs—slightly above the 127,000 forecast—with unemployment holding steady at 4.2%.
o While the headline number looks positive, deeper data raises concerns. The first four months of 2025 saw significant downward revisions (January: -32K, February: -49K, March: -108K, April: -30K), suggesting May’s figure may also be revised lower (Average 4 month revision of 50k).
o It’s also important to note the job count comes from the Business Survey, which relies on modeling and estimates. Meanwhile, the Household Survey—based on direct interviews—reported a sharp loss of 696,000 jobs, including 623,000 full-time positions.
Private Sector Hiring Slows Sharply in May
o In a complete contradiction to the BLS, ADP’s latest report shows private employers added just 37,000 jobs in May—well below the 115,000 expected and the weakest pace since March 2023. The slowdown signals growing caution among businesses amid economic uncertainty.
o Large firms (500+ employees) shed 3,000 jobs, while small businesses cut 13,000 positions. Only the leisure and hospitality sector saw meaningful growth, adding 38,000 jobs—though that industry is already facing headwinds from slowing travel demand. Half of all tracked industries reported job losses.
o Wage growth held steady at 4.5% for current employees and 7% for job-switchers.
o “After a strong start to the year, hiring is losing momentum,” said ADP Chief Economist Dr. Nela Richardson. The trend is clear—3-month average job gains have dropped to 81,000, compared to 115,000 over six months and 139,000 over the past year.
Jobless Claims Hold Steady Above 1.9 Million as Layoffs Climb
o Initial jobless claims rose by 8,000 last week to 247,000—the highest since October. Meanwhile, continuing unemployment claims dipped slightly by 3,000 to 1.904 million, but have now stayed above 1.9 million for two consecutive weeks and in three of the past six.
o Adding to the concern, Challenger, Gray & Christmas reported that May job cut announcements jumped nearly 50% year-over-year. So far in 2025, layoff announcements are up 80% compared to the same period in 2024, driven by economic uncertainty and the impact of DOGE. Rising initial claims, persistently high continuing claims, and a surge in layoff announcements point to mounting stress in the labor market.
Deeper Dive into Friday’s BLS Jobs Report – with Help From David Rosenberg
· To paraphrase Economist David Rosenberg, “Nearly two-thirds of May’s job growth came from health care and education, with the remaining third driven—surprisingly—by leisure and hospitality, a sector the Fed’s Beige Book recently flagged as among the weakest. In contrast, only 40% of job growth came from cyclical sectors, underscoring a lack of broad-based strength.”
· The unemployment rate stayed at 4.2%, but only because the labor force participation rate declined from 62.6% to 62.4%. Had participation held steady, the unemployment rate would have jumped to 4.6%, likely shifting the bond market’s tone. The employment-to-population ratio also dropped from 60.0% to 59.7%, its lowest level since January 2022—pointing to underlying slack in the labor market.
· What did catch markets off guard was the unexpected +0.4% monthly increase in average hourly earnings (vs. +0.3% consensus). This came despite the voluntary quit rate—a key wage growth indicator—declining for the fifth straight month, now at 9.8%, a four-year low.
· While the headlines focused on the headline report, the Household Survey tells a far more concerning story—and one that’s largely being overlooked.Employment in the Household Survey plunged by 696,000 in May, and is now lower than it was at the start of the year. Every age group saw job losses, with the prime working-age demographic (25–54) losing 198,000 jobs—its third decline in the past four months. Even more troubling, nearly all of the drop was in full-time positions, which fell by 623,000.”
· “The headline payroll number significantly overstates the strength of the labor market. Even if you accept the +139,000 print, keep this in perspective: during the 2019 tariff battles under Trump, the Fed cut rates three times as inflation cooled, and payrolls averaged +172,000 during that period. Today’s job market, with these underlying weaknesses, arguably warrants even more caution.”
· All of this to be said, it seems as if the jobs market is slowing down considerably and any further slow down in job creation should turn into lower mortgage rates and borrowing costs ahead, barring any major changes in the new Bill that increases government spending rather than reducing spending.
This Week’s Market Commentary:
- If you have read my weekly newsletter long enough, you now know that after Jobs Week, we go head on into Inflation Data Week. We get Consumer (CPI) and Producer (PPI) Inflation this week, Wednesday and Thursday respectively. March and April we reasonably tame during all the initial tariff hype, so these reports will be closely watched. We shall see if these tariffs are being passed onto the consumer or are being swallowed up by business profit margins. Both data reports are expected to increase Year-over-Year, so should we get below estimate reports and YOY stays flat or decreases, we should see a nice bond rally. Of course, the opposite could happen as well.
This Week’s Reports:
- MON – NO NEWS
- TUES – NFIB Small Business Optimism Index, 3-Year Note Auction
- WED – MBA Mortgage Applications, CPI (Consumer Price Index), 10-Year Note Auction
- THURS – Jobless Claims, PPI (Producer Price Index), 30-Year Bond Auction
- FRI – University of Michigan Consumer Sentiment
Builders Are Winning In This Market. Here’s How You Can Too!
Tips for Buyers, Realtors and Sellers Alike
With today’s buyers hyper-focused on monthly payments, price cuts aren’t always the best solution for their monthly budget. Builders have figured this out—and they’re dominating by offering rate buydowns instead of price drops. They have been doing this for 3 calendar years now too.
In 2025, it appears that rates starting with a “5” is what buyers want to see and lock in for the long-term. I am seeing more buyers feel comfortable with a permanent rate buydown at 5.875% in-lieu of a Temporary Rate Buydown for 2-3 years.
Instead of offering $15K-$30k less than list price, opt for a seller-paid rate buydown to 5.875%, a 3/2/1 Buydown, or some sort of variation of all three options.
Remember, these large seller concessions are only for all FHA & VA Buyers and for Conventional/Jumbo buyers with at least 10% down. The max Seller Concessions with less than 10% Down on Conventional is 3% of sales price.
Link to the Analysis to view in greater detail
Thanks for reading and have a great day!
