Jobs week data keeps mortgage rates above 7%
By BLS: Total nonfarm employment rose by 256,000 in December, and the unemployment rate was little changed at 4.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment in healthcare, government and social security increased. Retail added jobs in December, following job losses in November.
Let me first briefly explain my model and how I looked at employment data through 2024.
In December 2023, the labor market reached a milestone: more than 157 million people worked on the non-farm payroll. Given this momentum, I expected monthly job creation numbers in 2024 to fall within my range of 140,000 to 165,000 jobs. It seemed reasonable to anticipate a slowdown as we approached the 159 million employment level. However, this adjustment only occurred after some negative revisions to the data.
To smooth things out, let’s look at the most recent data, assuming average job creation over a three- to six-month period.
- Average over 3 months: 170,000
- Average over six months: 165,000
So 2024 ended more in line with my top forecast based on the average of the past six months. We see weakness in manufacturing labor as it is impacted by higher rates and capital costs. The number of jobs in the industry fell by 87,000 in 2024. We are seeing job growth in employment in traditional sectors such as healthcare and government.
The most important data line for me in this part of the economic cycle is residential construction jobs, and while that data isn’t growing much anymore, it’s not declining either, as we can see below.
For 2025, the Fed’s unemployment rate is 4.3%. If housing worker jobs decrease, that could push us to a higher unemployment rate because we already have job losses in this sector. However, that has not happened yet; that would quickly bring my monthly labor forecast below 140,000.
What does this mean for mortgage interest? We’re getting closer to my peak prediction rate of 7.25%. The current mortgage price is 7.24% and the 10-year yield is 4.76%. For mortgage rates and 10-year rates to continue rising from this level, we need stronger economic data for the remainder of 2025.
This week, vacancy figures improved and once again exceeded 8 million.
The Quits data has been softer for a while
The quits data has been softer for some time.
Unemployment benefits data has declined again, something I recently wrote about here looking at how this data is critical to the Fed and the bond market.
Overall, the jobs numbers exceeded the report’s expectations. However, I tend to focus on the trend, and when I examine the trend data, it appears that the labor market is softening, but not in a state of collapse.
The Federal Reserve has recently taken a more aggressive stance, which is not surprising. I’ve always believed that they needed to see a significant downturn in the job market before they could make a decisive pivot. Currently, the statistics they monitor do not indicate major declines.
