Mortgage Rates to Fall a Little After Weak Jobs Report, But All Eyes on Election

A much weaker-than-expected October jobs report will reverse a very small part of the recent climb in mortgage rates. But they will remain elevated relative to where they were a month ago until the outcome of the election is known. That’s because most of the recent rise was due to concerns around tariffs and government debt, as well as increased rate volatility. Mortgage rates are also unlikely to fall much because today’s report is muddied by two hurricanes and a strike at Boeing, making it difficult to know how much the labor market is truly weakening. This data will not alter the Fed’s plan to cut 25 bps at their meeting next on November 7, but will nudge them to cut another 25 bps at their December 18 meeting.

Only 12,000 jobs were created in October, the smallest increase since December 2020 and much lower than expectations of over 100,000 jobs. But it’s impossible to know how much of the miss can be attributed to Hurricanes Helene and Milton. The Bureau of Labor Statistics attributes a decline of 44,000 jobs in transportation equipment manufacturing mostly to the Boeing strikes. That means, absent the strikes, job creation would have been closer to 56,000. In addition, the two hurricanes impacted both job creation and survey collection in October. We should expect upward revisions for October data next month as late survey responses come in, and a rebound in November data as businesses affected by the storms reopen.

The unemployment rate, as reported, held steady at 4.1%, but the unrounded rate increased from 4.051% to 4.145% and would have gone up more had labor force participation not declined. The unemployment rate is calculated based on the household survey, a different survey than the one that provides the job creation number. This month, the household survey found that employment fell by 368,000 and that the percent of the population that is interested in looking for work fell from 62.7% to 62.6%. Since the unemployment rate is calculated as a percentage of those looking for work, it largely remained the same, but that masks the fact that fewer people were looking for work, which can be a symptom of disruptions and/or labor market weakness.

Job creation in August and September were also revised down considerably with 112,000 fewer jobs created in those months than previously thought, further evidence that, beyond hurricane effects, the labor market is slowly weakening. Since these numbers reflect months where the data was collected before hurricanes Helene and Milton hit, they should be largely unaffected by the storms. The three-month average of job creation is now 104,000 per month, about half of what it was a year ago.

With uncertainty around today’s data, the Fed’s plans are unlikely to change much and mortgage rates are only likely to fall a little. The Fed is all but certain to cut by another 25 bps at its meeting next Thursday. The outcome of the December 18th meeting had been more uncertain, and they will get one more month of labor market data ahead of that meeting on December 6, but the weakness in today’s data makes the case for another 25 bps cut at that meeting.

Beyond the Fed’s plan for policy rates, mortgage rates are mostly being driven by election-related concerns. Investors have increasingly priced in the possibility of higher tariffs and more government spending post-election, driving mortgage rates higher in recent weeks. Increased rate volatility has also caused mortgage rates to go higher faster than yields on treasuries. That means that the direction of mortgage rates mostly depends on the outcome of Tuesday’s elections. Indeed, if today’s data is seen to be helpful to tilting the election toward President Trump, rates may even rise if the effect of higher tariffs dominate labor market concerns.

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