Job Market Slows, Inflation Below Forecasts

Delayed government data showed inflation cooled more than forecasted, while the job market showed signs of softening. In housing news, sales ticked higher as inventory declined. Here’s a look at the key highlights.

·      Inflation Comes in Well Below Expectations

·      Delayed Jobs Reports Highlights Labor Market Weakness

·      Existing Home Sales Edge Higher

·      December Sees Slight Uptick in Builder Confidence

Inflation Comes in Well Below Expectations

Delayed inflation data showed consumer prices rose just 0.2% from September to November and 2.7% year over year, down from 3% in the prior report.

Core inflation (which excludes food and energy) also increased 0.2% over the two-month period and eased from 3% to 2.6% annually, marking its lowest level since early 2021. All these readings came in well below analysts’ expectations.

Shelter costs remain a major driver of inflation, accounting for roughly 35% of headline CPI and 44% of core CPI. Because of this heavy weighting, even modest changes in housing costs can have an outsized impact. Cooler shelter readings helped keep overall inflation below expectations.

What’s the bottom line? Although the report was missing many standard data points after October’s release was canceled due to the shutdown, the softer-than-expected results were an encouraging sign that inflationary pressures continue to ease.

Delayed Jobs Report Highlights Labor Market Weakness

October payrolls fell by 105,000, while November rebounded with 64,000 jobs added – above the 45,000 forecast. Downward revisions to August and September reduced payrolls by 33,000 jobs combined.

The unemployment rate rose to 4.6%, its highest level since 2021, climbing steadily from 4.1% this summer. Broader labor measures also showed weakness: the U-6 unemployment rate – which includes underemployed and discouraged workers – jumped from 8.0% to 8.7%, the highest level since 2017 when excluding COVID-related distortions.

The mix of job gains underscored the labor market’s softness, with 983,000 full-time jobs lost and 1,025,000 part-time jobs gained, indicating growing reliance on part-time work.

In addition, the latest jobless claims data (Initial Claims: 224,000; Continuing Claims: 1.897 million) reinforced signs of a cooling labor market, suggesting job seekers are taking longer to find new employment.

What’s the bottom line? The Fed continues to weigh inflation risks against a weakening labor market. High inflation typically limits rate cuts, while soft employment data increases pressure to ease. The Fed has cut the benchmark Fed Funds Rate by 25 basis points three times this fall. While this rate – what banks charge each other for overnight loans – doesn’t directly set mortgage rates, it influences borrowing costs across the economy.

Chair Jerome Powell has emphasized there is “no risk-free path,” and both inflation and labor market trends will remain key drivers of rate decisions in the months ahead.

Existing Home Sales Edge Higher

Existing home closings rose 0.5% in November, marking the third straight month of gains, according to the National Association of REALTORS® (NAR). Still, sales remained 1% below last year’s pace. Inventory declined nearly 6% from October to 1.43 million homes but was still 7.5% higher than a year ago.

What’s the bottom line? NAR Chief Economist Lawrence Yun said lower mortgage rates this fall supported sales, while seasonal factors have slowed new listings, moderating inventory growth heading into winter.

December Sees Slight Uptick in Builder Confidence

Home builder sentiment rose 1 point to 39 in December, its highest level since April, according to the National Association of Home Builders (NAHB). While the index remains below the key 50 mark that signals growth, the increase exceeded expectations for a flat reading.

Buyer traffic held steady at 26, while both current and future sales expectations increased by one point. Notably, expectations for future sales have stayed above the 50 threshold for the third consecutive month.

What’s the bottom line? While builder confidence continues to edge higher, buyer hesitancy, higher construction costs, and economic uncertainty continue to keep overall sentiment in check.

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