Mortgage Bankers Association (MBA) Chief Economist Mike Fratantoni expects the disappointing Sept. 5 jobs report from the U.S. Bureau of Labor Statistics to have a silver lining in the form of a long-anticipated reduction in interest rates.
According to the report, the U.S. added 22,000 jobs in August as estimates for the previous two months were revised down by 21,000.
In a statement published by MBA, Fratantoni noted the revised estimates also indicate previously unseen job losses in June, which coincided with a 4.3 percent increase in the unemployment rate.
“The job market is softening, with even sectors like health care, which had steadily contributed to job growth, now slowing,” he said. “Job losses continued in the federal government and manufacturing sectors.”
To demonstrate his observations, Fratantoni noted a significant increase in the U-6 rate, which represents the broadest measure of unemployment and underemployment in the country.
“While the headline unemployment rate increased to 4.3 percent, what was more notable was the larger increase in the U-6 to 8.1 percent, with more workers only able to find part-time work or becoming discouraged by the lack of job openings, and the continued increase in the length of unemployment spells,” he said. “While the pace of layoffs has picked up somewhat, the hiring rate remains quite low. It is increasingly difficult for those laid off, and for new entrants into the job market, to find a position.”
Meanwhile, wage growth has risen at a pace of 3.7 percent over the past year, which Fratantoni described as “steady” but slower than it was one year ago.
“The slowdown in the job market should be more than enough for the FOMC (Federal Open Markets Committee) to cut its short-term rate target at its September meeting, as this is not a picture of an economy at ‘maximum employment,’ and the greater risk now appears to be that the job market will slip further in the months ahead,” he explained.
As for potential future interest rate reductions, Fratantoni said he expects them to “certainly be tempered by the ongoing risk of a pickup in tariff-induced inflation.”