Weaker labor market keeps Fed cut bets and mortgage hopes alive
United States jobs data for October and November pointed to a labor market that has clearly lost steam, keeping expectations that the Federal Reserve could cut rates again as soon as January and anchoring mortgage rates near recent lows.
Nonfarm payrolls grew by 64,000 in November after a previously unreleased 105,000 decline in October, according to delayed data from the Bureau of Labor Statistics (BLS).
The unemployment rate rose to 4.6%, its highest level since 2021, while the broader underemployment measure, U6, climbed to 8.7%.
Health care accounted for most of November’s gains, adding 46,000 jobs, while federal government employment fell by 162,000 in October and another 6,000 in November.
“The BLS released two months of payroll employment data today, along with the household survey data for November. The net is that the job market is softening more rapidly than markets had anticipated, but in line with MBA’s forecast,” said Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association.
“The key phrase from the BLS is that payroll employment ‘has shown little net change since April.’ Job gains in some months have been offset by job losses in others,” Fratantoni said.
Low‑fire, low‑hire labor market
“The picture of the labor market remains mixed after today’s jobs report. Overall, the labor market still looks like a ‘low‑fire, low‑hire’ environment – employers weren’t adding aggressively, but layoffs remained contained,” said Sam Williamson, senior economist at First American.
“Revisions also trimmed 33,000 jobs from August and September, pushing August further into negative territory.”
Fed and mortgage rate implications
Fed chair Jerome Powell recently cautioned that BLS figures should be viewed with “a somewhat skeptical eye” after the shutdown, but he also said “there is an overcount in the payroll job numbers, we think,” suggesting underlying job growth might have been weaker than reported.
“Despite the November payrolls upside surprise, the increase in unemployment is likely to keep the Federal Reserve’s attention on labor‑market risks, especially after delivering a series of quarter‑point cuts since September,” Williamson said.
“While today’s report may strengthen the case for additional cuts early next year, Thursday’s inflation data and December’s jobs report – both arriving before the next FOMC meeting – will carry greater weight in shaping policy decisions.”
Average hourly earnings rose just 0.1% on the month and 3.5% over the year, the smallest annual gain since 2021 and a development many rate‑setters had sought. “Over the past 12 months, average hourly earnings have increased by 3.5 percent,” Fratantoni said.
FOMC members who backed the most recent cut “received support for that action, given these signs of a weaker job market,” Fratantoni said. “Mortgage rates are likely to be little changed by this news.”
“For housing, mortgage rates are likely to stay near current levels around one‑year lows, offering a relatively stable backdrop that may coax more buyers off the sidelines,” Williamson said.
“Even so, for many households, life events – not marginal rate moves – will remain the main catalyst for buying decisions for the time being.”
For experienced mortgage professionals, the labor market no longer looks like a source of renewed inflation pressure, and that keeps the door open to further Fed easing that could extend today’s rate window into early 2026.
Williamson believes that the central bank will proceed more carefully in 2026 than it did in 2025. He expects the Fed will make one or two rate cuts in the new year.
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