Soft September Jobs Report May Give Fed Reason to Pause Rate Hikes, Slowing Ascent of Mortgage Rates

Takeaway: A soft jobs report may finally offer some relief for mortgage rates, or at least help to stem the march upward. Jobs data is no longer the key to whether the Fed continues to hike, but this data should give them a reason to wait.

• The Bureau of Labor Statistics (BLS) reports 29,000 jobs were created in September (vs. 90,000 expected and 133,000 in August). The revisions to the last two months of data also show that 60,000 fewer jobs were created in July and August than previously reported. Consistent with the data center boom, construction continued to add 11,000 jobs despite slowing residential construction.
• The unemployment rate unexpectedly ticked up to 4.2% from 4.1%.
• Average hourly earnings increased only 0.1% month-over-month (vs. 0.3% expected).
• The one positive number was the fraction of adults participating in the labor force increased marginally to 61.8%.
• The jobs data this year has been wildly volatile in part due to a new birth-death model the BLS implemented earlier this year. The birth-death model estimates how many jobs were created or lost due to firms opening or closing, which is difficult to measure via the standard survey. This month that model took 190,000 jobs off of the total after five months in a row of adding to job creation.
• In addition, in years with an unusually late Labor Day (as was the case this year), even though these numbers are adjusted for calendar effects, residual seasonality has resulted in lower job creation numbers.
• We appear to be back in the low-hire/low-fire narrative. Given the technical factors, it’s important to look at the three-month moving average for job creation. At 51,000 jobs per month, that is likely on the lower end of the break-even rate for this economy given immigration. The unemployment rate remains low even though it increased and unemployment insurance claims have come in very low in recent weeks. All in all, this should alleviate some of the fear that the economy is accelerating.

• The Fed had forecasted one more hike in 2026, and the debate in recent days has been whether they needed to go again in October or could wait until December. Ultimately, that will come down to the CPI inflation data released on the 14th, so today’s jobs data doesn’t completely take October off the table. But CPI would now need to come in pretty high for the October hike to happen, especially because the recent rapid rise in rates is already having the same effect as a rate hike.