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The U.S. economy put in a surprisingly strong showing in in January, adding 517,000 new jobs despite layoffs in tech firms, on Wall Street and in the mortgage industry.
And while experts say it’s a sign the country is on a path to a “soft landing” from 2022’s tumultuous inflation, it could push mortgage rates up.
“The 517,000 jobs number was a massive upside surprise from the 188,000 estimate,” Eric Merlis, co-head of global markets at Rhode Island-based Citizens, said in a statement. “The employment numbers point to a soft landing. The Fed should be pleased that the labor-force participation rate ticked up, to 62.4% from 62.3%.”
January’s job growth far exceeded December’s 260,000 total and extended a streak of powerful hiring gains that raised concerns at the Fed about inflation pressures. The Fed has raised its key rate eight times, including a quarter-point increase Wednesday, since March to try to contain inflation that hit a four-decade high last year but has slowed since then. In addition, the government also revised previously-reported employment numbers upward for November and December 2022.
Companies are still seeking more workers and are hanging tightly onto the ones they have. Putting aside some high-profile layoffs at big tech companies like Microsoft, Google, Amazon and others, most workers are enjoying an unusual level of job security even at a time when many economists foresee a recession approaching.
“This is a labor market on heat,” said Seema Shah, chief global strategist at Principal Asset Management. It would be difficult, she suggested, “to see the Fed stop raising rates and entertain ideas of rate cuts when there is such explosive economic news coming in.”
However, Mortgage Bankers Association Chief Economist Mike Fratantoni pointed out that the jobs numbers showed slower wage growth in the service sector, “the trend that Federal Reserve officials have been seeking, despite the persistent strength in the job market.”
“We expect another 25-basis-point increase in the federal funds target in March,” he said in a statement, “but do anticipate that the unemployment rate, which does tend to be a lagging indicator, will increase through the course of the year.”
Even if Friday’s jobs report contains good news for the economy at large, it could send mortgage rates up after several consecutive weeks of declines – just as prospective homebuyers thinking about jumping into the housing market this spring might be exploring mortgage loans.
“Robust job data will raise the prospect of consumer price inflation and the need for a more aggressive monetary policy to rein in inflation,” National Association of Realtors Chief Economist Lawrence Yun said in a statement. So just as mortgage rates were trending down towards 6%, there could be a temporary rise. Still, rents are expected to calm down due to active apartment construction. That will help lower the broader consumer price inflation and halt Fed rate increases by summer. Mortgage rates can then go below 6%.”
Material from The Associated Press was used in this report.
