The honey badger labor market woke up on Friday and chose violence, biting the legs of any job recession bear it could find. The first reaction from the bond market was to shoot up bond yields and mortgage rates went higher. However, as the day progressed, bond yields decreased from the peak.

What is going on with the U.S. labor market? The answer is that we are just working back to normal. 

Jobs data

From BLS: Total nonfarm payroll employment rose by 336,000 in September, and the unemployment rate was unchanged at 3.8 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in leisure and hospitality; government; health care; professional, scientific, and technical services; and social assistance.

Nothing has changed from my long-term view on the labor market recovery premise I have written about for years. If COVID-19 had never happened, based on our population growth and job growth data pre-COVID-19, we should have between 157 million and 159 million jobs today. Until we get into this ballpark range, it’s all make-up demand. Today, we stand at 156,874,000, so we are close to breaking into the makeup labor data pool.

Here is a breakdown of the jobs gained and jobs lost in today’s report

In this job report, the unemployment rate for education levels looks like this:

• Less than a high school diploma: 5.5% 
• High school graduate and no college: 4.1% 
• Some college or associate degree: 3.0% 
• Bachelor’s degree or higher: 2.1%

From BLS: In September, average hourly earnings for all employees on private nonfarm payrolls rose by 7 cents, or 0.2 percent, to $33.88. Over the past 12 months, average hourly earnings have increased by 4.2 percent. In September, average hourly earnings of private-sector production and nonsupervisory employees rose by 6 cents, or 0.2 percent, to $29.06.

Wage growth data has been cooling down since January of 2022; we don’t see any data that would implicate a wage spiral. If the trend continues, we will be close to the Federal Reserve‘s target for wage growth next year with their goal of 2% inflation. To me, 3%-3.5% will make the Fed so happy, and If we get any productivity growth, that will be icing on the cake.

It’s been straightforward with the Fed, bond yields and mortgage rates in 2022 and 2023. I don’t believe the Fed will pivot until jobless claims break over 323,000 on the four-week moving average. The one data line improving since July has been jobless claims, and bond yields have been trending higher. The four-week moving average is running at 208,750.

Bonds and mortgage rates

What does this mean for mortgage rates and the bond market after a crazy week? The bond market is oversold so that a rally could happen anytime, but can it get much lower with the jobless claims data being this strong? As we can see in today’s action, bond yields shot up, moved lower, but still ended higher than today’s lows.

I am currently looking at the 4.87% level on the 10-year yield as a line in the sand. The 10-year yield has just had a massive sell-off, and we need to find a stable level to bounce from, or this can keep going higher and higher. We had a weak attempt by a few Fed presidents and Treasury Secretary Janet Yellen this week to try to talk the bond market down, but bond traders didn’t care much. Actions speak louder than words, and when the Fed went with a hawkish future outlook, it gave traders the green light to sell bonds. And the jobless claims data is too low for the Fed to pivot off that hawkish tone.

All in all, the jobs report was a good one with good revisions. Wage growth is cooling and most likely, we will see some negative revisions to this report. However, this doesn’t change my mindset about the labor data; we are still in make-up mode for labor and working our way back to a normal job market.

Over the next 12 months, there will be new variables to test the economy, not only with higher rates, but now student loan debt payments will need to be made. We will take the economic data one day at a time, but I believe the story so far in 2023 is how well the jobless claims data is doing and we can’t have a job loss recession in America until that data line breaks over 323,000.