Shocking jobs report sends mortgage rates falling to new yearly lows

The Federal Reserve has been saying for months that the labor market is solid, claiming there are no issues and attributing the softness in the data to population growth. However, many of us were skeptical of that explanation and today’s jobs report is bringing home the reality that the Fed was too late in reacting to changing conditions. With the 10-year yield down toward 4.08%, expect mortgage rates to hit new yearly lows today because the Fed was wrong about the labor market: it wasn’t about population growth.

The latest jobs report was yet another disappointing outcome for the Fed, and one of the negative revisions revealed a decline in the labor market in one of the reports. What does that tell us? It tells us that the Fed is old and slow.

The premise since 2022 has been that the Fed will remain as restrictive as possible until the labor market shows significant weakness. At every Federal Reserve meeting, they have stated that they are modestly restrictive. After today’s jobs report, they now have a chance to reconsider their stance. Hopefully, this will serve as a wake-up call for them.

While jobless claims have risen and the unemployment rate is skyrocketing, we have faced labor issues for some time that were purposely disregarded. Changes are needed.

Details from the jobs report

Total nonfarm payroll employment changed little in August (+22,000) and has shown little change since April, the U.S. Bureau of Labor Statistics (BLS) reported today. The unemployment rate, at 4.3%, also didn’t change much in August. A job gain in health care was partially offset by losses in federal government and in mining, quarrying, and oil and gas extraction.

Here is a chart of the unemployment rate. It is still low historically, but if it weren’t for the labor force growth slowing down, this data line would be higher today.

In today’s episode of the HousingWire Daily podcast, Sarah Wheeler and I discussed two sectors that we are concerned about in recent months: manufacturing and residential construction. Losing jobs in both areas simultaneously is a troubling sign and cannot simply be attributed to the slowing population growth this year. We emphasized this point in our discussion.

As we can see in today’s report, we are losing jobs in construction and manufacturing, even with the AI Data center boom.

While residential construction labor isn’t collapsing, it is getting softer. I often say the Fed tends to overlook this sector’s importance until a recession occurs, giving them time to move away from their moderately restrictive policy.

Other construction labor sectors are rolling over already, as we can see below.

As you can imagine, the 10-year yield fell like a waterfall today, currently at 4.08%, breaking a key level that has held up for many months outside the drama around Godzilla tariffs.

Stay focused on economic and labor data

Let’s keep it simple, everyone: the focus is on labor rather than inflation. Many people thought interest rates couldn’t decrease due to rising inflation rates, but given everything that has happened in 2025, I still see things clearly. My forecast for the 10-year yield range is between 4.70% and 3.80%, while mortgage rates are expected to fall between 7.25% and 5.75%. We haven’t significantly broken above or below these levels yet. Therefore, we should stay focused on economic and labor data when considering interest rates.