In our topsy-turvy economy, where good news for ordinary people means bad news for financial markets, worries about an overheated labor market pushed 10-year Treasury yields to their highest in 16 years in October. That put pressure on stocks and pushed the average interest rate on America’s most popular mortgage into even more inaccessible territory, topping 8% for the first time in 23 years.
But perhaps everything changed on Friday, when the Labor Department released its monthly jobs report with a shockingly low number — just 150,000 jobs were added last month, 20,000 fewer than forecast and barely half of September’s 297,000 gains.
The news helped the average interest rate on 30-year fixed-rate mortgages fall below 7.4% on Friday, its lowest level in two months, and provided some relief to the housing market. Mortgage rates tend to follow the 10-year Treasury yield, and it plunged on Friday, showing investors may be anticipating interest rate cuts from the Federal Reserve.
And while a cooling job market might not be great for the average American, it’s definitely good news for Fed officials who have been hoping to slow job growth amid their nearly two-year battle against inflation.
“Get another target for the Fed,” Ronald Temple, chief market strategist at Lazard, said of the latest jobs report, arguing that weaker-than-expected job and profit growth was evidence that inflation pressures are easing. “This news once again confirms that the Fed should end the rate hike cycle and now consider what conditions would justify the first rate cut in 2024.”
Stock market investors reacted quickly to news that the Fed’s rate-hiking cycle may be coming to an end. The S&P 500 rose more than 1% on Friday, while the tech-heavy Nasdaq gained 1.4%. Both indices achieved their best weekly performance since November 2022.
For potential homebuyers looking for a way out of a historically unaffordable real estate market, this initial drop in mortgage rates raises hopes of some much-needed relief. According to the former Fortune housing editor Lance Lambertand co-founder of Resiclub, tweeted on Friday: “The average 30-year fixed mortgage rate in the U.S. drops to 7.36%. That’s 67 basis points lower than the 23-year high of 8.03% reached last month. This is the lowest value since September 20th.”
Conor Srthe Bloomberg Opinion columnist specializing in macroeconomics and housing, responded on behalf of the crowd: “We’re so back.”
But is the slowdown real?
There’s a caveat to the story that Wall Street is cheering a labor market slowdown: Historically high strike rates could keep job creation artificially low in October. The strikes by auto workers at Ford, GM and Stellantis last month, as well as a strike by Hollywood actors that has been going on since May, have certainly led to a decline in employment. Technically, the economy lost 35,000 manufacturing jobs in October, but almost all were in the motor vehicle and parts sector, where workers are on strike.
While the United Auto Workers strike accounted for much of the monthly job creation failure, some experts believe there are still signs of a slowdown in the labor market, pointing out that the number of new jobs created in September was revised downwards by 39,000.
“Although this month’s figure is artificially (and temporarily) lower due to striking workers returning, the lower revisions in previous months exceed the magnitude of this adjustment, potentially indicating a real cooling trend even when strikes are taken into account. “Workers,” said Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance.
Kathy Bostjancic, chief economist at Nationwide, echoed Zaccerlli’s comments on Friday. “Even taking into account the auto industry strikes, which affected 32,000 strikers, there is a clear downward trend in job growth,” she said.
The slowdown in the labor market is likely to help boost markets and lower mortgage rates as investors await the end of the Fed’s rate-hiking campaign.
The decline in mortgage rates is striking. A day after Realtor.com wrote that “housing costs just hit a ‘new record,'” the site noted that mortgage rates “abruptly reversed.” Over at Redfin, Chen Zhao, head of the economic team, noted that interest rates have fallen “significantly,” bringing “some relief to homebuyers.”
Before the last jobs report, affordability in the housing market was so poor that Zillow estimated it would take the average buyer 13.5 years to recoup their investment. That’s more than double the historical average of about six years.
If thousands of UAW workers fighting for better conditions could delay economic data for a month and prevent future Fed rate hikes, it would be a huge, if accidental, achievement that would go a long way toward improving the situation would afford the standard of living of an average American.
Still, it is only good news if it lasts and if the employment figures actually turn out to be a coincidence and not a temporary pause on the steep path to mass unemployment. The rise in the unemployment rate has been so sharp that the economy is now a hair’s breadth away from recession. This is evident from the Sahm Rule, a metric named after former Federal Reserve economist Claudia Sahm that excels at predicting recessions with absolute accuracy. On the other hand, at 3.9%, it is close to historic lows from the late 1970s.
And while a recession would certainly significantly reduce home prices, asset prices, and other indicators of inflation, it would plunge many more Americans into misery. “A recession would likely lower mortgage rates significantly,” Zhao said, “but it would also deter some people from the path to homeownership if they lose their jobs.”