525 viewsBefore I even get to the details, you can probably already guess what that headline means for mortgage rates. We’ll dig into that more a bit later, so let’s start with the highlights of the Labor Department’s report:
- Payrolls rose by 336,000 last month, the biggest gain since January and much higher than the Dow Jones estimate of 170,000.
- The unemployment rate was unchanged at 3.8%.
- Wages rose 0.2% last month and were 4.2% higher than a year ago. Both those figures were slightly below forecast, but that’s good news as wage increases impact inflation more than hiring.
- Job gains for July and August were revised up by a combined 119,000. This is worth noting, as it’s the first time this year that changes to prior months weren’t negative.
- Leisure and hospitality (+96,000) added the most jobs last month, followed by a 73,000 increase in government jobs.
Now that we’ve given just the facts to Sergeant Friday, let’s look at what it all means.
The bottom line is there’s just no stopping the labor market. Hiring did soften in the first half of the year, but it came back strong in the third quarter. Let’s look at why that’s happening when so many economists—me included—had been predicting otherwise:
- Companies are still desperate for workers. As of the end of August, there were 9.61 million open jobs out there, up almost 700,000 from the prior month, and well above the Dow Jones estimate of 8.8 million.
- The "excess savings" that had built up during the pandemic is running out, and with the restart of student loan payments, more people need to reenter the workforce.
- After declining in February and March, retail sales have risen for the past five months, and remember spending is about two-thirds of GDP.
- Even with all the talk of big layoffs at large companies, jobless claims remain historically low at just 207,000 last week.
As Hammer might say, the labor market is just "2 Legit 2 Quit." Maybe that phrase didn’t work out so well for him, but it seems to be doing just fine when it comes to jobs these days.
So, what does this mean for mortgage rates? Yep, they are going up. Shortly after the September employment report came out this morning, the yield on 10-year treasuries jumped to near a 16-year high. This is bad news for 30-year mortgages, which have already risen each of the past four weeks and are now averaging 7.49%. It’s been over two decades since mortgage rates were that high.
To sum up, the labor market continues to outperform expectations, which has kept us from recession but has also brought long-term rates higher. You add the continued ability of Americans to keep spending, and you have much better-than-expected economic growth. The third quarter GDP report comes out on October 26, and it’s expected to be a strong number. The Atlanta Fed’s latest estimate for 3Q23 GDP is 4.9%, and that was done before the jobs report came out. If they’re right, that would be the highest growth rate since 4Q21.
While the current level of inflation has come down sharply since peaking in June 2022, that is not what moves 30-year mortgage rates. They are all about the future, and right now the economic future keeps looking better than anyone thought it would. Unfortunately, that raises the chance of higher inflation in years down the road, and that’s really what moves long-term rates.
Thank You!
Just wanted to take a moment to acknowledge all the nice comments I got about last week’s column. I’ve written 184 editions of The Line, and it was by far the most feedback I’ve ever received. So please keep them coming—even if it’s to tell me you didn’t like something—as I always want to know what’s on your mind. Also, feel free to ask any questions you have, and I will try to answer them in future columns.