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Here’s what today’s job creation implosion means for housing and mortgage finance

Jobs crater, labor participation rate near 40-year low and zero wage growth

The likelihood of a Federal Reserve interest rate hike in 2015 just got even more unlikely, with September job creation cratering to a weak 142,000, well below analyst expectations.

Further, downward revisions to the two prior months total 59,000 means most positive spin from August and July is out the window.

Average hourly earnings growth also came in below low-end expectations, at 0% and a year-on-year rate of 2.2%, which is also unchanged. Weekly earnings actually declined from $868.46 to $865.61.

The cherry on top of this bad news sundae is that labor participation fell 2 tenths to a nearly 40-year low of 62.4%, the lowest since October 1977.

Those not in the labor force soared 579,000 to a record 94.6 million, up from the previous record 94 million, even as the number of people employed tumbled by 236,000 to 148.8 million.

Here’s what these numbers mean for the housing market, according to Selma Hepp, chief economist at Trulia.

“Despite the turmoil abroad, strong economic conditions in the U.S. persist and continued job growth has kept consumer confidence on solid footing. The health of the housing market is now mainly driven by local economic conditions,” Hepp says. “Metropolitan areas with the lowest rates of unemployment are also the ones with stronger housing demand. Additionally, the faster rate of job growth among Millennials will continue to bolster both the rental and for-sale housing markets for an extended period of time.”

Hepp agreed that today’s numbers will likely postpone the anticipation of a Fed interest rate hike. And while the hike is possible in 2016, Trulia’s report showed that consumers are much less concerned about the mortgage rates than they are about getting a mortgage or finding the right home.

In another sign of weakness that may be a prelude to recession, weekly hours dropped from 34.6 to 34.5 hours .

Private payrolls rose only 118,000 with government jobs adding 24,000. In manufacturing there was a big 0.6% decline in hours that points to contraction for the industrial production report.

“The September jobs report was full of downside surprises. Job gains for September were well below market expectations, average hourly earnings were flat, the average workweek ticked down, and the unemployment rate held steady as the labor force participation rate dropped to a 38-year low,” says Doug Duncan, chief economist for Fannie Mae. “The final blow was the realization that the jobs market was weaker than previously reported, as August and July job gains were revised substantially lower, contrary to a widely anticipated sizable upgrade for August.

“On a somewhat more positive note, the addition of 8,000 construction jobs, the biggest gain in four months, is evidence that the supply side of housing may be making grudging progress. In her speech last week, the Fed Chair said that most FOMC participants, including herself, believe that a rate hike this year will likely be appropriate,” he says. “The statement was followed by a caveat that this could change ‘if the economy surprises us.’ We believe that today’s jobs report delivered a sufficient surprise to a cautious Fed that could delay the lift-off to next year.”

Employment in other major industries, including construction, manufacturing, wholesale trade, transportation and warehousing, financial activities, and government, showed little or no change over the month.

And to add to the sum total of bad news, the Federal Reserve Bank of Atlanta’s GDPNow model nowcast for real GDP growth in the third quarter of 2015 came in at 0.9% on Oct. 1, down from 1.8% on Sept. 28. The model’s nowcast for the contribution of net exports to third-quarter real GDP growth fell 0.7 percentage points to -0.9 percentage points on Sept. 29 following the advance report on U.S. international trade in goods from the U.S. Census Bureau.

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