Mortgage rates fell this week, as leading economic indicators point to slowing aggregate demand and the potential for further disinflation.

Up until now, a strong labor market supported consumer spending. However, February’s Job Openings and Labor Turnover Survey (JOLTS) showed a notable decline in hiring and quits, indicating a cooling of the labor market. Leading economic indicators also show signs economic activity is likely to slow. In March the ISM manufacturing purchasing managers index (PMI) fell to its lowest level in three years as new orders plunged. The services PMI is also moderating, with the index for prices paid for inputs falling to its lowest level since May 2020. Combined, these signals suggest that consumer price inflation is likely to cool, and as inflation cools, the yield on longer term rates – including mortgage rates – is also expected to fall.

Of course, much uncertainty remains, and mortgage rate volatility will remain elevated as investors position themselves for next week’s inflation reading from the consumer price index.