The latest jobs report came in stronger than expected. Together with the Fed press conference and news from the U.S. Treasury this past Wednesday, this week’s economic news is a wash for mortgage rates: They’re ending the week where they started.
The January jobs report came in with monster numbers. Although there are some statistical issues that cast doubt on the total accuracy of the numbers, the report still tells us that the labor market remains strong, and was even stronger last year than economists previously thought. That’s positive for homebuyers because it means more Americans have more money in their pockets–but negative because it pushes up mortgage rates.
The numbers: The U.S. economy gained 353,000 jobs last month, compared with 185,000 expected. November and December 2023 data also revised up. The unemployment rate remained at 3.7% instead of ticking up to 3.8%, which was expected. Hourly wages grew much faster than anticipated: 0.6% month over month (versus 0.3% expected) and 4.5% year over year (versus 4.1% expected).
Why there’s some doubt about the accuracy of these numbers: The total jobs number is likely inflated due to issues with January’s seasonal adjustment, which is the process that adjusts the real number for expected seasonal patterns to compare one month’s numbers with another month’s numbers. Before the pandemic, retailers hired a lot of workers during the holidays and laid them off in January, so seasonal adjustment accounts for that. In the post-pandemic era, the shift away from brick-and-mortar retail makes it so the seasonal adjustment typically overstate January’s job gains because it’s expecting a big decline that’s actually much smaller. We saw the same outsized job gains in January 2023; February 2023 saw much smaller gains. Additionally, hourly wages came in higher than expected partly because the average workweek unexpectedly declined by 0.2 hours, which mechanically pushes up wages. Data this week from a more reliable estimate, the employment cost index, shows wage growth falling.
Even accounting for those data concerns, the jobs report clearly shows an incredibly resilient labor market that’s far from a recession.
Why a strong job market is both good and bad for the housing market: More people with more jobs earning more money is positive: It means more Americans can afford to buy homes and make monthly payments. It could also lead to more listings by encouraging some homeowners to sell and move up to a better house. On the flip side, a strong job market also has certain implications in this inflationary era: It implies slightly higher mortgage rates for longer, as the Fed tries to tame the economy and prevent inflation from rising again.
What this means for the Fed: The Fed is still likely to cut interest rates this year because inflation is showing signs of coming close to the target range. But this jobs report underscores what Fed Chairman Jerome Powell said in a press conference earlier this week: A rate cut in March is unlikely, and this report makes it even less likely. Financial markets are now pricing the odds of a March rate cut at less than 20%, down from 33% after Wednesday’s Fed press conference. Additionally, 10-year treasury yields are up about 16 bps. That erases the drops from earlier this week that resulted from the U.S. Treasury saying they wouldn’t increase the supply of long term bonds. In the end, this week’s economic news is a wash for rates. There was some rate volatility this week, but we’re ending the week where we started.
Final takeaway for homebuyers: Mortgage rates are unlikely to meaningfully increase or fall in the next several months. This isn’t the year to try to time the housing market for financial gain; it’s the year to buy and/or sell a home if it makes sense for your personal circumstances.
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