Weak job growth may give the Fed pause on rate hikes, potentially easing mortgage rate pressures.
Source: Original report
The September jobs report, showing weaker-than-expected growth, may finally offer some respite for mortgage rates, which have been on an upward trajectory. The data could give the Federal Reserve a reason to pause its rate hike campaign, according to Redfin's head of economics research.
Key Job Data Indicators
The Bureau of Labor Statistics reported that only 29,000 jobs were created in September, significantly below the expected 90,000 and down from 133,000 in August. Revisions to previous months' data showed 60,000 fewer jobs created in July and August than initially reported. The unemployment rate ticked up to 4.2% from 4.1%, and average hourly earnings increased just 0.1% month-over-month, against an expected 0.3% rise.
Underlying Factors
The volatility in jobs data this year can be attributed to a new birth-death model implemented by the BLS earlier in the year. This model estimates job gains or losses due to businesses opening or closing, which can be challenging to measure accurately. Additionally, an unusually late Labor Day this year may have contributed to residual seasonality effects, leading to lower job creation numbers.
Despite these factors, the construction sector added 11,000 jobs, continuing its growth amidst a broader slowdown in residential construction. The labor force participation rate saw a slight increase to 61.8%, offering a glimmer of positive news.
Implications for Mortgage Rates
The Fed had previously forecasted one more rate hike in 2026, with debates focusing on whether it should occur in October or wait until December. The upcoming Consumer Price Index (CPI) inflation data, set to be released on October 14th, will play a crucial role in this decision. However, today's jobs data reduces the likelihood of an October hike, unless the CPI data shows unusually high inflation.
The current three-month average job creation rate of 51,000 positions per month probably sits at the minimum level needed to sustain the economy, factoring in present immigration figures. With unemployment staying low and unemployment insurance claims remaining low, worries about rapid economic expansion have diminished.
What to Watch Next
The focus will now shift to the CPI inflation data and the Fed's response. While the jobs report suggests a potential pause in rate hikes, mortgage rates may still experience volatility in the short term. Borrowers should stay informed about these developments, as they could significantly impact borrowing costs.
