The latest jobs report was a mixed bag, but homebuyers and sellers can still expect the Federal Reserve to cut interest rates in May or June.
The jobs report this morning was a pretty mixed bag, with higher than expected job gains for February, but also a higher than expected unemployment rate and large revisions to previous month’s job gains. Overall, this data shouldn’t push the Fed too much in one way or another, but definitely paves the way for a June rate cut if inflation data also cooperates next week.
The economy added 275,000 jobs in February, more than the 200,000 expected by forecasters. However, December employment was revised down by 43,000 and January by 124,000, for a total of 167,000 fewer jobs than we had previously thought. The January revision is especially notable because last month’s hot jobs report blew expectations out of the water and many analysts figured it was a statistical fluke due to residual seasonal effects.
The unemployment rate unexpectedly rose from 3.7% to 3.9% due to an increase of 334,000 unemployed people. Forecasters had expected the unemployment rate to stay the same. Average hourly earnings were up 0.1% MoM and 4.3% YoY, below expectations of 0.3% MoM and 4.4% YoY. Hourly earnings were down dramatically from last month’s reading of 0.5% MoM, which was almost certainly statistical noise stemming from a large unexpected drop in weekly hours.
All in all, these data point to a still strong—but not too strong—labor market. They confirm that last month’s jobs report was a fluke and that we’re largely back where we expected to be. Combining today’s report with the JOLTS (Job Openings and Labor Turnover Survey) report earlier this week, which showed job openings coming down gradually, the labor market appears to be in a “just right” spot for the Fed. They should feel good about gradually cutting rates because we see little risk of the labor market pushing inflation out of control again. And there’s also little reason to be worried about an impending recession necessitating large rate cuts immediately.
In other words, this is a “soft landing” jobs report that should keep the Fed on the path it’s currently on. As long as the inflation data comes in as expected next Tuesday, this paves the way for a first rate cut in either May or June, though June is more likely based on Fed commentary. Short term rates fell on the news, but long term rates are holding steady and expected to stay that way, meaning mortgage rates should be little changed today. For homebuyers and sellers, this report is consistent with our expectations that rates will gradually fall this year as the Fed cements a path for rate cuts in Q2.
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