This week’s data and treasury market reaction are significant for 2 reasons: (1) It’s been 2 weeks since headlines regarding the banking crisis and (2) Employment reports this week may be indicating loosening labor demand. In the last year, the Fed has become increasingly concerned about job openings vs unemployed workers as the usual survey data (JOLTS, etc.) showed a ratio as high as 2 to 1. As major corporate layoff announcements have been occurring multiple times a week and real time data from private job listings (indeed.com, Zip Recruiter, etc.) show plummeting job postings, many analysts feel that the Fed was looking at lagging data. The phrase “zombie job postings” and reports of skewed survey results imply that the official data is lagging. Monday’s data indicated continuing contracting in manufacturing (ISM). Tuesday saw job openings (officially) fall 700,000 to below 9.9 million- the lowest in 2 years and a lower than expected job creation number. Today’s jobless claims continued the narrative with higher applications both now and upwardly revised over the past few months (based on updated methodology). Will the Fed possibly realize that they have already raised rates enough to loosen the labor market? Tomorrow’s monthly major unemployment report might shed more light. 10 Year treasuries rallied down to 3.29%.
As systemic banking issues have receded from the headlines, the issues are not solved. The Real Estate Roundtable’s recent letter to the FDIC and the Federal Reserve highlights the issues and suggests some solutions. It notes that recent interest rate moves by the Fed have stressed bank balance sheets as treasuries and MBS are now worth less. There is $1.45 trillion in looming commercial and multifamily debt maturities in 2023-2025- banks and thrifts hold just over 50% of total CRE debt. The letter requests the establishment of a TDR (troubled debt restructuring) program that will encourage regulators to allow loan modifications during times of economic instability. This will avoid Banks being “forced” into foreclosing and/or putting sponsors into default due to restrictions on their ability to modify loan terms. Banks are also asking for increased deposit insurance which will put them on equal standing amongst depositors with the “TBTF” money center banks. The combination of increased depositor confidence and balance sheet flexibility could be part of a solution. Stay tuned…
