Job creation continued to slow in July as unemployment spiked, which economists say is good news for the Federal Reserve and the housing industry. Mortgage rates have seen a sharp move lower since the report was released on Friday morning.
Data from the U.S. Bureau of Labor Statistics released on Friday shows that total nonfarm payroll rose by 114,000 jobs in July, below analysts’ expectations, and well below the average of monthly gain for the past 12 months of 215,000 jobs.
In addition to the slowing job growth, the cooling labor market conditions were also evident in a 0.2 month-over-month percentage point increase in the unemployment rate to 4.3% with, 7.2 million unemployed people. A year ago, the unemployment rate was 3.5% with 5.9 million people unemployed.
Job gains in July were most notable in industries like health care (55,000 jobs), transportation and warehousing (14,000 jobs), and construction (25,000 jobs), a positive for the housing industry.
When broken out, the residential construction sector added 31,700 jobs month over month, while the number of residential specialty trade contractors rose 7,400 from a month prior. Overall, for the past year, the construction sector has added an average of 19,000 jobs per month.
“Construction employment showed a small gain, as builders continue to work to add to housing supply given the ongoing shortage,” Mike Fratantoni, the Mortgage Bankers Association’s chief economist, said in a statement.
The real estate sector added 4,100 jobs, up from just a 500-job gain in June.
The information sector was responsible for the most jobs lost, declining by 20,000 jobs month over month.
Bright MLS’ chief economist Lisa Sturtevant, believes July’s jobs numbers will give the Fed more confidence about cutting interest rates in September.
“The risk of an economic recession remains low, but the pullback in private-sector employment suggests that higher borrowing costs and uncertainty are definitely having an impact,” Sturtevant said in a statement. “The BLS’s Job Openings and Turnover report released earlier this week showed that the number of job openings has declined, hiring activity is slower, and fewer people are leaving their jobs.”
While the cooling job market is important to the Fed, economists, say it is not the only factor the Fed is watching.
“Inflation data will be released later this month. If the inflation data for July continues to show a decline, it is all but certain that the Federal Reserve will cut interest rates in September,” Sturtevant said.
Ahead of the Fed’s meeting next month, mortgage rates have already started to come down, hitting their lowest level of 2024 on Thursday at about 6.62%.
“Assuming the economy comes in for the so-called soft landing, lower mortgage rates will bring both more home buyers and sellers into the market in the second half of 2024,” Sturtevant said.
Fratantoni added: “The market is moving ahead of the Fed, bringing down longer-term rates including those for mortgages, which should lead to both more home purchases and a pickup in refinance activity.”
