Mounting Evidence of a Weaker Job Market

Recent labor market data points to growing softness in employment, while inflation figures remain largely in line with expectations. Here’s what investors and homeowners should know.

Small Businesses Drive a Drop in Private Payrolls

In November, the private sector shed 32,000 jobs, according to ADP, far below expectations. Breaking it down:

• Small businesses: -120,000 jobs
• Medium-sized firms: +51,000 jobs
• Large employers: +39,000 jobs

Six out of ten industries lost jobs. Education and health services added 33,000, while leisure and hospitality gained 13,000, reflecting seasonal trends.

Wage trends: Job switchers continue to see stronger wage growth at 6.3% year-over-year, compared to 4.4% for job stayers. The gap has narrowed to 1.9%, the smallest in five years, signaling less aggressive competition for talent.

Bottom line:
The private sector has lost 17,000 jobs over the past four months, with hiring described as “choppy” by ADP Chief Economist Nela Richardson. The delayed official government employment data due to the federal shutdown adds weight to these findings.

Additional Indicators Show Labor Market Softening

Other signs of weakening include:

• Initial jobless claims: Fell by 27,000 to 191,000, but likely influenced by Thanksgiving delays.
• Continuing claims: Slight dip to 1.939 million, remaining above 1.9 million since mid-May.
• Job cuts: Challenger, Gray & Christmas reported 71,000 announced layoffs in November, up 24% from last year. Year-to-date, 1.17 million jobs have been cut – one of only six years since 1993 with November totals about 1.1 million.
• Hiring plans: Year-to-date hiring announcements are at their lowest since 2010; seasonal hiring plans are the weakest since 2012.

Bottom Line:
Persistently elevated claims, rising layoffs, and weak hiring plans indicate a labor market losing momentum.

PCE Inflation Data Points to Possible Rate Cut

The delayed Personal Consumption Expenditures (PCE) report for September showed inflation largely as expected:

• Overall inflation: +0.3% for the month; annual rate rose from 2.7% to 2.8%
• Core PCE (Fed’s preferred measure): +0.2% for the month; annual rate slightly down from 2.9% to 2.8%

Bottom Line:
With inflation in line with expectations and slowing job growth, the data supports the case for a potential Federal Reserve rate cut.

What This Means for Mortgage Rates

The Fed’s decisions on interest rates influence the Federal Funds Rate, which affects broader economic conditions, including mortgage rates. Weak labor market data combined with stable inflation increases the likelihood of a rate adjustment, which could impact borrowing costs for homeowners and buyer.

Bottom line:

• Small businesses are cutting jobs, and hiring plans are weakening.
• Inflation remains steady, giving the Fed flexibility to act.
• Mortgage borrowers should watch for potential rate adjustments as the Fed balances growth and inflation risks.

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