By Gay Cororaton, MIAMI REALTORS Chief Economist
October’s employment data shows that job creation is slowing although businesses are not massively laying off workers. Slowing employment conditions increases the likelihood that the Fed will not raise rates in its December meeting, holding down mortgage rates to below 8% through the end of the year.
Non-farm employment rose m/m by 150,000, just half last year’s level (324,000 one year ago). On a year-over-year basis, non-farm payroll employment is up 1.9%. In the Miami-Fort Lauderdale-West Palm Beach metro area, jobs are rising at a faster pace of 2.5%.
Jobs are still growing in most industries except for significant declines in manufacturing, transportation/warehousing, and information.
Meanwhile, businesses are not massively laying off workers while wages are rising faster than inflation, increasing purchasing power. Wages are also growing at a more moderated pace of 4%, although slower than one year ago (4.9% one year ago). But wage growth is still outpacing inflation of 3.7%, increasing worker purchasing power. The increase in wages arising from the union demand for higher wages (e.g., UPS, Kaiser, UAW) may partly explain the sustained growth in wages. Labor demand and supply is coming into better balance.
Job openings have slowed also to 9.553 million jobs as of the end of September (10.854 million one year ago). The unemployment rate has slightly moved up to 3.7% and with 6.51 million unemployed workers, there are 1.5 openings per unemployed worker (1.9 openings per unemployed one year ago).
Fed is expected to keep rates steady in December, Mortgage rates to hold below 8%
How will the Fed read the employment data in deciding a rate increase in December? I think the Fed will read this data as “monetary policy tightening is still working its way through the economy “ and I expect they will keep rates steady at 5.25% – 5.5% to avoid an overtightening that could careen the economy into a hard landing.
Chair Powell effectively said in his November 1 press conference that with the gains in inflation and with the monetary tightening working its way through, the monetary tightening can go at a slower process now. However, also stated at the last meeting, there was no discussion of rates coming down and that the focus is still to ensure that inflation is going down on a sustainable basis.
I expect inflation to come in at 3.5%- 3.7% in October. With inflation steady, the Fed is likely to also put this in the “hold off a rate increase”.
The inflation data coming out next week is the other critical piece of information. Inflation has also been slowing. As of September, inflation (based on the Consumer Price Index) was at 3.7%. I expect inflation to come to between 3.5% to 3.7% in October. One leading indicator is the Producer Price Index, which rose just 2.5% in September.
With inflation stabilizing and the Fed likely holding off on a rate increase in December, the 30-year fixed mortgage rate is likely to hover at 7.5% to 7.8%, and to remain BELOW 8%.
