The latest employment data supports a September interest rate cut by the Federal Reserve, thus increasing affordability conditions for home financing.
The U.S. Bureau of Labor Statistics reported August’s Employment Situation Sept. 6, indicating an increase in non-farm payroll employment of 142,000, or 23,000 below consensus estimates of 165,000. Total non-farm payrolls in June and July were revised down, 86,000 lower than previously reported.
The unemployment rate fell to 4.2% in August, as expected, from 4.3% in July. Construction job growth increased by 34,000 – nearly twice the monthly average of 19,000 in the last year.
“Overall, today’s report signals that the U.S. labor market continues to cool gradually, which supports the Federal Reserve’s impending pivot from an inflation-fighting campaign to buoying a cooling labor market,” said First American Senior Economist Sam Williamson. “10-year Treasury yields are essentially flat, implying market sentiment is unchanged and the Fed cuts are priced into mortgage rates. The very rate-sensitive housing sector remains sluggish due to the affordability constraints caused by record-high house prices and still-elevated mortgage rates.”
The Fed is likely to respond to this ongoing softening of the labor market with a 25-basis point cut later this month, kicking off its rate-cutting cycle, according to Williamson.
“Had the labor market deteriorated more significantly,” he added, “it may have triggered the Fed to consider a 50-basis point cut in September.”
Additional rate cuts in the fourth quarter of this year will be dependent on incoming economic data, including inflation. August’s Consumer Price Index is expected to be released Sept. 11.
“Assuming no surprise jump in inflation next week and continued labor market softening in the months ahead could certainly bolster the argument for additional rate cuts in November and December,” Williamson pointed out. “The benefit of these rate cut expectations are already appearing on the 30-year fixed rate mortgage."
