The jobs report today which should move mortgage rates lower, demonstrates why it’s time for the Federal Reserve to land the plane. The labor market doesn’t show wages spiraling out of control as it did in the 1970s because the inflation data doesn’t look like anything in the 1970s.
We had a solid job openings print this week and jobless claims are still near historic lows. Today’s labor data isn’t the cleanest report with labor strikes in different sectors and we did get significant negative revisions. But, job growth is returning to its average pace. Remember, if we didn’t have COVID-19 and job growth stayed on trend with population growth from February of 2020, we easily should have between 157 million – 159 million total people employed, and today we are at 156,930,000.
From BLS: Total nonfarm payroll employment increased by 150,000 in October, and the unemployment rate changed little at 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, government, and social assistance. Employment declined in manufacturing due to strike activity.
Here’s a breakdown of the jobs gained and lost in today’s report:
In this job report, the unemployment rate for education levels looks like this:
Less than a high school diploma: 5.8%
High school graduate and no college: 4.0%
Some college or associate degree: 3.1%
Bachelor’s degree or higher: 2.1%
Wage growth has been slowing down since January of 2022, which is a big slap in the face to everyone saying that wage growth can’t slow down unless people lose their jobs. Today’s 4.1% year-over-year growth data is lower than the 6% plus wage growth data we saw in January of 2022.
The other labor data lines were fine this week: nothing is breaking, but put them all together, and the labor market is returning to normal. Job openings data is roughly at 9.6 million, but the quits percentage is back to pre-COVID-19 levels. That’s essential because the Fed doesn’t want people to quit their job for higher wages. Jobless claims rose more than anticipated, but this is historically low.
The 10-year yield has had a crazy week, heading lower before the jobs report as we can see below.
As I write this article, the 10-year yield is at 4.53%, and mortgage rates are heading lower! Softer labor data will send rates lower. Looking at the history of economic cycles, usually when the Fed is done hiking rates, bond yields head lower with mortgage rates. The Fed made a big mistake by being too hawkish in its October meeting, which sent bond yields (and mortgage rates) much higher and made policy more restrictive
Overall, the labor market is getting back to normal. This is why, for a long time, I have targeted that 157 million to 159 million level as the baseline level for job growth, reflecting the slower growth rate of our population. We had a global pandemic, which did not throw us back to the 1970s, and in time, we are returning to normal.
We don’t need to create a job-loss recession for some code of honor that doesn’t exist among Federal Reserve members, we just need to endure.
