The lower-than-expected labor market gains for September brought the average monthly job growth for the year down below 200,000, which could possibly slow down the heretofore robust activity for the housing industry so far in 2015.
While the national unemployment rate held steady at 5.1 percent from August (the U6 unemployment rate, the broadest measure of unemployment, fell 3 basis points to 10 percent), September saw a gain of just 142,000 jobs, bringing the average monthly total for the first nine months of 2015 down to 198,000, according to the September 2015 Employment Summary released by the Bureau of Labor Statistics (BLS) on Friday. By comparison, average monthly job gains for the first nine months of 2014 totaled 260,000.
"We had been seeing a level of job creation closer to 3 million on a trailing 12-month basis on average for the last year, but the revisions and the relatively weak September number change that trailing 12-month trend to 2.8 million," said Jonathan Smoke, chief economist for Realtor.com. "Job creation is a very important leading indicator of strong demand for housing. The strong employment results for the last two years created an uptick in household formation, which drives demand for home purchases and rentals. If this softening sticks, we could see less robust growth in the year ahead."
Aside from September's soft job growth, the August and July numbers were both revised downward by a combined 59,000 jobs down to 223,000 and 136,000, respectively, bringing the average monthly gain for the past three months down to 167,000. Average hourly earnings took a step back in September, dropping by one cent down to $25.09 after seeing a nine cent increase from July to August, according to the BLS.
"We believe that today’s jobs report delivered a sufficient surprise to a cautious Fed that could delay the lift-off to next year."
Labor participation dropped by 350,000 in September while the labor participation rate fell by 2 basis points down to 62.4 percent, the lowest level since the 1970s. The U6 unemployment rate declined by 3 basis points despite the dropoff in labor participation due to a smaller fraction of laborers employed part-time for economic reasons, according to Douglas Holtz-Eakin, president of the think-tank American Action Forum and former head of the Congressional Budget Office.
"The September jobs report was full of downside surprises," said Doug Duncan, SVP and chief economist with Fannie Mae. "Job gains for September were well below market expectations, average hourly earnings were flat, the average workweek ticked down, and the unemployment rate held steady as the labor force participation rate dropped to a 38-year low. The final blow was the realization that the jobs market was weaker than previously reported, as August and July job gains were revised substantially lower, contrary to a widely anticipated sizable upgrade for August."
September's soft job growth likely means that housing will be strongest in metro areas where the labor market is the strongest, according to Trulia chief economist Selma Hepp.
"Despite the turmoil abroad, strong economic conditions in the U.S. persist and continued job growth has kept consumer confidence on solid footing," Hepp said. "The health of the housing market is now mainly driven by local economic conditions. Metropolitan areas with the lowest rates of unemployment are also the ones with stronger housing demand. Additionally, the faster rate of job growth among millennials will continue to bolster both the rental and for-sale housing markets for an extended period of time."
The BLS reported the addition of 8,000 construction jobs in September, which means that the supply side of housing may be making "grudging progress," according to Duncan. Hepp noted that, "Housing related employment is growing at an increasingly stronger pace than any other types of jobs. Most of this growth is driven by the construction sector."
One notable effect the soft job growth could possibly have on the economy is that it makes the possibility of a federal funds target rate increase by the Fed less likely to happen before the end of the year.
"In her speech last week, the Fed Chair said that most FOMC participants, including herself, believe that a rate hike this year will likely be appropriate," Duncan said. "The statement was followed by a caveat that this could change 'if the economy surprises us.' We believe that today’s jobs report delivered a sufficient surprise to a cautious Fed that could delay the lift-off to next year."
Likewise, Hepp said, "Today’s numbers will likely postpone the anticipation of Fed interest rate hike."
One positive takeaway for consumers from Friday's jobs report is that already low mortgage rates will likely get even lower.
"This weak report is already influencing the long-term bond market, so mortgage rates will fall in response," Smoke said. "The average 30-year conforming rate was down to 3.86 percent yesterday, and rates will be lower until strengthening economic trends are more evident. This summer’s home shoppers cited favorable interest rates as a top reason for being in the market for a home.”