Recession fears are on the rise in the U.S. on the heels of a weak jobs report that kicked off a stock market drop not seen in years, but local economic analysts say Las Vegas residents shouldn’t be ringing any alarm bells just yet.
U.S. markets rebounded Tuesday and Stephen Miller, research director at UNLV’s Center for Business and Economic Research, said he thinks the stock market overreacted to last week’s job data. He’s staying with his assessment that the U.S. economy is sticking a soft landing right now.
“The labor report was not bad, it was just weaker than expected and the unemployment rate went up,” said Miller.
The Labor Department reported that the U.S. unemployment rate jumped to a three-year high in July of 4.3 percent from 4.1 percent in June. The Las Vegas Valley’s unemployment rate at the end of June was well above the national average at 6.2 percent, which Miller said is something to watch.
Miller also said the Federal Reserve has been waiting to see an uptick in unemployment before it started to cut interest rates.
“If you go back in time you may recall that Powell said they need to see some type of increase in the unemployment rate before they could take action,” Miller said.
The current federal funds rate sits at 5.33 percent, and has since August 2023. From a historical perspective, the last previous time the funds rate was above 5 percent was before the Great Recession of 2008-09.
Fed chair Jerome Powell has indicated a rate cut is possible at the Feds’ next meeting on Sept. 18. However, spooked analysts have started calling for an emergency rate cut.
Miller said he expects a 50 basis points rate cut in September and then potentially more in December.
Las Vegas-based mortgage adviser Matt Hennessy said the rise in the unemployment rate is definitely something the Fed has been watching and will factor into potential rate cuts.
“There’s a couple things to keep in mind,” he said. “When we hear headlines indicating the Fed may cut rates as early as their next Fed meeting in September, they are referring to the Federal Funds Rate. The Fed funds rate affects short term consumer financing,” he said.
Hennessy said this is where Las Vegans should pay attention as any rate cuts by the Fed would give them a chance to look at their own financial rates for a variety of products.
“This will lower interest rates and overall costs to consumers in the Las Vegas Valley on credit cards, car loans and home equity lines of credit. Mortgage interest rates will benefit indirectly as well, yet mortgage rates don’t move in a straight line but rather increase or decrease throughout the day reacting to economic data being reported,” Hennessy said.
According to Redfin, mortgage rates for an average 30-year-fixed term sit at 6.7 percent, which is a drop from May’s five-month high of 7.2 percent. Still, rates have been historically elevated since 2022 as the last time mortgage rates were over 6 percent was in 2008 according to the Federal Reserve Bank of St. Louis.
Hennessy said a drop in mortgage rates is a double-edge sword for the housing market as there are homebuyers sitting on the sidelines right now because of high rates and potential home sellers “locked” into their current low rates.
“While nobody has a crystal ball, the potential for mortgage rates to trend lower presents both an opportunity and a challenge,” he said. “For every 1 percent mortgage rates drop, an estimated 5 million additional buyers could enter the market. This increase in buyers could drive up home prices and competition, making it strategically sound to buy now and potentially refinance later.”
National Association of Realtors chief economist Lawrence Yun said in a statement the housing market is starting to soften along with the economy.
“Mortgage rates are plunging on the news of weak job growth and rising unemployment,” he said. “The Fed was late moving away from the restrictive monetary policy stance when early signs of a softening economy were visible.”
Contact Patrick Blennerhassett at pblennerhassett@reviewjournal.com.