The February jobs report is weaker than expected. The report shows that U.S. employers cut more jobs than anticipated last month, and unemployment rose–both signs of a shaky economy. While that would typically drive down mortgage rates, the evolving conflict in Iran is having the opposite effect.
Takeaway: The surprisingly weak jobs report is stirring the pot this morning, but rates are unlikely to fall much, if at all. That’s because the jobs report is difficult to interpret, with tons of methodological nuance. Additionally, the intensifying conflict in Iran is driving the market.
After a hot January jobs report, the pendulum swung the other way in February with the economy losing almost 100k jobs and the unemployment rate increasing from 4.3% to 4.4%. However, there’s a lot going on under the hood and it is not clear the job market is all of the sudden much worse than it was.
- In total, 92k jobs were lost in February when economists were expecting to see about 60k jobs created. Only 6k of the jobs losses were in government, so the private sector lost 86k jobs.
- The huge swing from January when job creation far outpaced expectations is entirely due to healthcare. In January, as has been the case for many months, almost all of the job creation (116k) was in healthcare, but in February, healthcare lost 18.6k jobs. Strike activity only accounted for about 30k of the change.
- Changes to the birth death model–how the Bureau of Labor Statistics (BLS) estimates job creation from firms being created and destroyed–accounted for much of the change in job creation. The birth death model is now more accurate but it is also contributing about 65k less in monthly job creation than it used to in prior years. That means the more negative job creation numbers we are getting now are probably closer to the truth, but the job market is also not worsening dramatically. It’s just the prior data was overly rosy.
- The increase in the unemployment rate brings us back to December’s level after a surprising drop in January. The BLS did update the population estimates that underlie the survey that gives us the unemployment rate this month, but that is unlikely to affect the unemployment rate.
Mortgage rates are unlikely to fall as they usually would in response to data like this because the escalating Iranian conflict is dominating headlines, with oil prices spiking. That is continuing to drive rates modestly higher today and will continue to result in rate volatility.
- The Fed is on pause and while today’s data might nudge them closer to cutting again, they need to see more than one print because of the volatility in the recent jobs data. That means changes to monetary policy expectations are not what’s behind rate moves right now.
- Instead geopolitical issues have been the dominant force. With the fluid and escalating situation in the Middle East, changes to rates will be harder to predict in the near term.
