Mortgage Rates Could Tumble as Jobs Slow

The U.S. economy added nearly 200,000 jobs in November, boosted by returning workers from the union strikes in the auto industry and hiring in the health care and government sectors, data from the U.S. Bureau of Labor Statistics showed on Friday.

The unemployment rate fell to 3.7 percent after jumping to 3.9 percent the previous month. Analysts said that the job growth might be hiding the trend that the jobs market was moderating.

"This is a very mixed report," Joanie Bily, chief workforce analyst at industrial staffing firm Employbridge, told Newsweek.

More people are getting back to work and participating in the labor market, Bily said, but the jobs report showed that hiring was concentrated in specific sectors. Health care added 77,000 jobs, while the government employed 49,000 new workers in November, the data showed.

"Employment in manufacturing rose by 28,000 in November, reflecting an increase of 30,000 in motor vehicles and parts as workers returned from a strike," BLS said in a statement.

Leisure and hospitality added 40,000 jobs, almost entirely in the food services and drinking places, BLS said.

"Based on this report, I would say this is a slowing jobs market," Bily said. "We are not seeing robust job growth."

Julia Pollak, chief economist at jobs platform ZipRecruiter, suggested that the underlying rate of growth hovered around 160,000 jobs per month, around the 2019 average.

"Job gains were fairly narrowly distributed across the economy," she told Newsweek, alluding to hiring in November being concentrated in health care and government.

"In the rest of the economy, job growth has effectively ground to a halt. The main reason for lackluster job growth across most of the economy is high interest rates, which have caused net domestic investment to decline since [the second quarter of 2022]."

The Federal Reserve, in an effort to fight historically levels of inflation, began hiking the federal funds rate at the most rapid clip since the 1980s to their current range of 5.25 to 5.5 percent. Inflation has slowed to 3.2 percent in October from the 40-year high of 9 percent in the summer of 2022, but it's still above the 2 percent level that policymakers are targetting.

Fed officials held rates at their last two meetings and will gather for their last meeting of the year next week to decide on what to do with rates.

What jobs numbers means for mortgage rates

The Fed's raising of rates has helped push up the cost of borrowing, which has been keenly felt in the housing market, where mortgage rates are hovering at near two-decade highs.

Over the last month, however, mortgage rates have declined on the back of expectations that with inflation moderating, Fed policymakers were done with rate hikes. The 30-year fixed rate mortgage has declined to an average of about 7 percent for the week, a drop of nearly 1 percent from a little over a month ago, lender Freddie Mac said on Thursday.

The latest jobs numbers, while they may suggest a strong labor market, showed a soft underbelly that may encourage Fed policymakers from hiking rates further.

"Payroll gains were inflated by returning strikers in November, but the underlying pace of job growth has slowed in recent months," Nancy Vanden Houten, a lead U.S. economist at Oxford Economics, said in a note shared with Newsweek. "That's encouraging for the Fed, which has likely ruled out further rate increases."

Mortgage rates may continue to decline if the Fed keeps rates on hold next week, but lenders were cautious about the outlook going forward, even if they expect policymakers to begin cutting rates next year.

"Interest rates jumped in response to this report, as job market strength may be enough to keep the Fed cautious with respect to any comments regarding the path for rates at their December meeting," Mike Fratantoni, Mortgage Bankers Association's chief economist, said in a statement shared with Newsweek.

"Inflation is declining, but further declines are likely dependent upon some slowing in the job market. We continue to forecast that the Fed will begin to cut rates in the spring of 2024, as job market trends are likely to weaken from here."