September job gains came in far higher than expected, a blow for the housing industry already grappling with mortgage rates near 8%. Job gains exceeded the average monthly gain of 267,000 over the prior 12 months. However, they remained lower than the 399,000 average of 2022, Realtor.com Chief Economist Danielle Hale noted.
Total nonfarm payroll employment increased by 336,000 jobs in September, more than in August, according to data released by the Bureau of Labor Statistics. This is the largest monthly increase since January 2023. Meanwhile, the unemployment rate was unchanged from July at 3.8%, aligning with the Fed’s projection. The number of unemployed persons was unchanged at 6.4 million.
The BLS revised the prior month’s employment data upward as they received final data from employer surveys. In August, the change in total nonfarm payroll employment was revised up by 40,000, from 187,000 to 227,000. Upward revisions could be alarming as it might mean that the labor market is not softening fast enough, calling for more tightening from the Fed.
Meanwhile, leisure, hospitality, government, health care, professional, scientific, and technical services and social assistance kept adding more jobs to the economy. The addition of new jobs in core industries where there are prospective homebuyers such as professional and business services or health care is an encouraging sign for the housing market in the fourth quarter of 2023, Bright MLS Chief Economist Lisa Sturtevant told HousingWire.
But overall, Sturtevant said, today’s employment situation report paints a picture of a robust labor market, one not slowed by rising interest rates. It also comes on the heels of the data on job openings that was released earlier this week.
“But rising interest rates, and the Fed’s signal that it plans to keep rates higher for longer, will eventually force businesses to pull back,” she said. “Consumers are also feeling the challenge of higher borrowing costs. In addition to the pure economic measures, it is helpful to look at the confidence indices that are released each month. U.S. small-business sentiment has declined, along with drops in home builder confidence. Measures of consumer confidence also have dropped significantly.”
Wage growth continued to cool in September
Wages rose by 4.2% annually in September, according to the BLS report, below consensus expectations of 4.3% and the slowest pace since June 2021.
“Stronger than expected employment growth combined with falling wage growth would be consistent with an increase in labor supply, a positive step toward a soft landing,” Orphe Divounguy, senior economist at Zillow, told HousingWire in an email on Tuesday. “The latter scenario would also result in a bond sell-off and higher yields.”
In anticipation of the next FOMC meeting on Nov.1st, Mortgage Bankers Association Senior Vice President and Chief Economist Mike Fratantoni said that September’s wage growth would still likely be too fast to be consistent with the Fed’s 2% inflation target.
“This report certainly surprised the market, which had been expecting a slowdown and longer-term rates jumped in response,” Fratantoni said. “Mortgage rates will follow which will likely mean that lending activity, which was already at a multi-decade low, is not going to pick up anytime soon.”