Why a strong employment report did not push mortgage rates much higher

Article Summary

BLS: Total nonfarm payroll employment increased by 165,000 in October, and the unemployment rate was little changed at 4.1 percent, according to the U.S. Bureau of Labor Statistics. Job gains were seen in professional and business services, health care, and transportation and warehousing.

Labor market data has improved enough that the unemployment rate has moved down from 4.5% last year to 4.1% now. Part of that shift is the slowdown in labor-force growth, which has lowered the break-even job level — the number of jobs needed to keep unemployment from rising. My estimate for that break-even level is 78,000 jobs a month; the Fed’s appears to be 33,000. Some economists put it at zero, which I think is unrealistic. In any case, the unemployment rate is lower this year than it was last year.

The low point of the COVID-19 recovery came in 2023, when unemployment was about 3.4%, so the rate has risen from that trough. Even so, it remains low enough that the Fed is still focused more on inflation than on labor-market weakness.

Jobs breakdown

The latest report showed gains across several sectors, especially business services, which posted one of its strongest monthly increases in years. Manufacturing also expanded, along with transportation and warehousing, while construction employment softened slightly.

Construction employment will be worth watching if mortgage rates remain elevated and short-term rates move higher. If an AI slowdown leads to fewer data centers being built, this sector could begin to weaken.

One of the most important recession signals, residential construction employment, has not looked especially strong recently, but it has not looked alarming either. In earlier downturns, this workforce showed a clear and sustained decline, and that has not happened in this cycle. Builders have used rate buydowns to keep new-home sales near 2019 levels over the past few years, and remodeling activity has held up, so this key recession indicator has not yet broken down.

10-year yield and mortgage rates

As volatile as the week has been, the jobs data was not the main force behind mortgage rates. AI-related stock moves mattered more. CoreWeave shares were up 10% in premarket trading, and bond yields rose with them. The jobs report produced only a modest increase in yields before they slipped back toward trend. Later, when CoreWeave turned negative, bond yields fell to the day’s lows, and both have since bounced from those levels. The market could use a weekend break.

Mortgage rates finished the day unchanged at 7.17%, so despite the strong jobs data, mortgage rates and bond yields did not surge higher. That is positive for rates, and there are also some steps the new Congress could take to potentially lower them further, as discussed on the HousingWire Daily podcast with Editor in Chief Sarah Wheeler.

Conclusion

Economic conditions shifted significantly this week in terms of the bond market and the outlook for mortgage rates. Hopes have risen that the trade war and the conflict with Iran could end soon, AI companies have shown they are not invincible, and Congress will try to slow the AI boom without causing a crash. Even with four strong jobs reports during jobs week, the 10-year yield ended at 4.86% and mortgage rates closed near weekly lows.