Upon Further Review
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September 5, 2025 -- The statement that closed the last FOMC meeting in late July said that "labor market conditions remain solid." About a month later, Fed Chair Powell noted in a speech that while there were large downward revisions in estimates of job growth that "it does not appear that the slowdown in job growth has opened up a large margin of slack in the labor market," but that labor conditions were in a "a curious kind of balance that results from a marked slowing in both the supply of and demand for workers."
Based on the latest figures, at least some of that may still be true, but it may also be that the balance referenced by the Fed Chair may be coming more unbalanced, as labor conditions appear to be softening further.
This week, we saw the Job Openings and Labor Turnover Survey (JOLTS) for July reveal a reduction in open positions some five weeks ago. Taken by itself, the decline was modest, stepping down from 7.357 million positions available to 7.181 million. However, this was the fewest number of open slots since last September, and only a statistical wobble away from being the fewest open positions since before the pandemic. This is yet another signal that companies are increasingly unwilling to look to add to their payrolls at a time of elevated uncertainty. At the same time, and while also a modest change, the number of layoffs in July ticked higher, rising just a smidge from 1.796 million to 1.808 million, but again, this was also the highest figure since the end of last summer.
The outplacement firm of Challenger, Gray and Christmas tallied 85,979 announced job reductions in August, a 38.5% increase over July's 62,075 and some 13.3% above the same period one year ago. While still well below the late-winter peak for this year, it nonetheless was a second upward step since June's 2025 bottom of 48,999, so the trend is moving in the wrong direction, albeit at a measured pace.
We haven't yet seen any appreciable increase in folks filing for unemployment benefits, but this may change, and there has actually been a slight bit of firming in initial benefits claims over the past couple of weeks. In the week ending August 30, 237,000 first-time applications for unemployment assistance were filed; while this isn't a level that sets off any alarm bells, the latest figure is the highest such reading since mid-late June. Of course, with fewer job openings available, when folks do become separated from their positions, finding a new gig is difficult. At 1.94 million, continuing claims for benefits remain close to a three-plus-year high.
With the above in focus, concerns about labor market conditions remain elevated, and the Employment Situation report for August did nothing to allay those concerns. New hires last month totaled all of just 22,000, a number well below already-meager expectations. While July's originally-estimated 73,000 saw an improvement of 6,000 positions, a second revision to June's estimate subtracted four times that number, leaving the start of summer with a net loss of 13,000 positions. The meager pace of hiring for August was accompanied by an uptick in the unemployment rate of 0.1% to 4.3%; while this is the highest level for unemployment in nearly four years, the increase was due in large part to the 436,000 folks who entered the labor force last month. This was the first increase in the ranks of potential workers since April. Their inclusion lifted the labor force participation up a tick of 0.1%, nudging it to 62.3% for the month. Wage growth posted a 0.3% increase for August, creating a 3.7% rise in wages over the last year, a figure just a bit above the current rate of inflation
None of these labor signals are encouraging, but they aren't exactly alarming, at least not yet. That said, there is another report that's due out next week that has the potential to add to the current discomfort, when the annual benchmark revisions to hiring are revealed. This annual revision to hiring counts covers the period of April 2024 through March 2025 and so has no bearing on the current state of employment, but it does have the power to significantly change the broader labor market picture. If you'll recall, last year's April 2023-March 2024 revision subtracted 818,000 hires from that 12 month period. If such a large revision were to come again this year, it would leave job growth for all of 2025 at near standstill.
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While it is widely anticipated that the Fed will only be trimming rates by a quarter of a percentage point at its meeting on September 15-16, a significant downward revision could put a half-point cut on the table. This was the case last September, when concerns about a softening job market were exacerbated by the sizable revision that came. On balance, labor market conditions were actually somewhat stronger then than now, but the economic and inflation backdrop today is also rather different than it was last year.
Workers that remain employed recently managed a higher level of output, as worker productivity for the second quarter of 2025 was revised upward to a gain of 3.3%, improving on the original estimate. It was also a solid rebound from the 1.8% decline seen in the first quarter. Rising productivity drives down the cost of labor per unit produced, and this measure came in at a muted 1% increase in Q2, down from 6.9% to start the year. Higher productivity allows businesses to pay folks more without any undue effects on inflation.
The Fed's regional survey of economic conditions (known as the "Beige Book" for the color of its cover) said that in the six week period ending in late August there was "little or no change in economic activity since the prior Beige Book" across eight of twelve districts; fur reported "modest" growth. The summary went on to note "Across Districts, contacts reported flat to declining consumer spending because, for many households, wages were failing to keep up with rising prices" and respondents "frequently cited economic uncertainty and tariffs as negative factors." Labor conditions were essentially unchanged in 11 districts and one reported a modest decline, so this anecdotal report is very consistent with the labor figures discussed above. Prices are still rising; "Ten Districts characterized price growth as moderate or modest," and "nearly all Districts noted tariff-related price increases," with businesses expecting to see higher prices and more of them passing them along in coming months.
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The Institute for Supply Management provides two broad looks at the economy, with one covering manufacturing concerns and the other covering service businesses. The manufacturing barometer told a familiar tale for August, and the top-line number continued to stumble along at a less-than-breakeven pace. The 48.7 mark for August was little different than July's 48.0 mark or any values since March, the last time this gauge was above the par value of 50. New orders managed to see a little increase, rising 4.3 points to a modestly-positive 51.4 for the month. While the employment measure did see a lift, the 0.4-point gain still left it at a very soggy 43.8, indicating a ongoing contraction in manufacturing employment. The inflation-tracking "prices paid" barometer remained elevated, although the 63.7 value for August was a 1.1-point reduction from July's level. Regardless of the slight easing for last month, this component has reflected a strong level of price increases in each of the last seven months.
Service-related business activity did fare a little better in August, with the overall ISM value coming in at 52.0, up 1.9 points from July, and the strongest showing since February. The headline figure was lifted by a solid jump in new orders for services, with a 5.7-point increase leaving orders at a solid 56.0 for the month. Service employment told much the same story as manufacturing; the 0.1 point increase this month to 46.5 suggests little if any hiring was to be seen over the summer in the broadest sector of the economy. The prices paid gauge also mirrored the same image regarding inflation trends; the 69.2 mark for this month was a slight improvement from July's 69.9, but price pressures have been evident in services for an extended period now and is part of the reason overall inflation has remained stubbornly high.
The nation's imbalance of trade widened again in July, expanding by $19.2 billion. Imports rose by $20.1 billion to $358.8 billion, stepping higher again after a June bottom. Exports have flattened; July saw only a meager increase of $0.8 billion, and at $280.5 billion the outgo was little different than it has been over the past three months. Rising imports against non-rising exports will likely again be a drag on GDP in the third quarter, but we'll need to wait for two more months of data to get a sense of how much. At last blush, the GDPNow estimate from the FRB/Atlanta puts GDP growth for the third stanza of 2025 at a 3% clip through September 4, while the Nowcast from the FRB/New York says 2.1% though September 5. Labor conditions may be softening, but at least so far, the economy seems to be holding up well.
Outlays for construction projects retreated by 0.1% in July, a third consecutive monthly decline. Spending on residential properties brightened a bit, managing a 0.1% increase, this component's first increase since last December. Non-residential construction spending contracted by 0.5% for the month, but public-works projects saw a 0.3% lift and has been generally well supported in recent months. This sector is likely still seeing some follow-through from COVID and post-COVID era federal spending bills, which can take a long while to work through various systems and processes before shovels ever hit the ground.
Overall factory orders faded by another 1.3% in July after a 4.8% decline for June. Non-durable goods did manage a gain of 0.3% and have been on the positive side of the ledger in six of seven months this year. Durable goods drove the decline, posting a 2.8% retreat as they continue to suffer a hangover from a huge 16.5% increase back in May. The wide swing (and decline) in durable goods orders is largely related to transportation-related items; excluding them (and military-related outlays) the "core" overall orders number revealed a fairly solid 1.1% increase for the month. Of course, these figures are still being distorted by the implementation of tariffs, and will likely be for a bit yet as the smoke of those slowly clears.
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Sales of new vehicles also saw considerable impact from tariffs earlier this year, but seem to have settled at a level somewhere between the tariff-buildup burst and the subsequent falloff thereafter. In July, an annualized 16.07 million new vehicles were sold, down 2.9% from June but fair enough, as they are still more than 6% above year-ago levels. The new tax deduction for interest on auto loans may help sales get a bit of lift this fall, provided the economy keeps chugging along and unemployment remains low.
The disappointing news regarding labor conditions will turn out to be a bit of a blessing of sorts for mortgage-seekers, as mortgage rates will be moving down. At least for the week ending August 29, requests for mortgage credit were down by 1.2%, according to the Mortgage Bankers Association. Applications for funds to purchase homes retreated by 3.1% in the most recent survey week, while those to refinance existing loans edged 0.9% higher. With rates running at 10-month lows and starting to ease a bit more, we'd expect to see some increases in mortgage applications being filed, especially for refinancing.
The updates and backward revisions to hiring figures are an additional reason for the Fed to further review its stance on monetary policy. A weak hiring market is not a declining one, and a slight upturn in the unemployment rate (expected as it was) doesn't change the picture very greatly. That said, a decreasing number of job openings, increased difficulty for those looking to find new positions and an as-yet unknown revision to the labor picture over the last year or so may require a rethink by the central bank as to the proper position for monetary policy.
Current Adjustable Rate Mortgage (ARM) Indexes
| Index | For The Week Ending | Year Ago | |
|---|---|---|---|
| Aug 29 | Aug 01 | Aug 30 | |
| 6-Mo. TCM | 4.05% | 4.27% | 4.89% |
| 1-Yr. TCM | 3.85% | 4.05% | 4.37% |
| 3-Yr. TCM | 3.62% | 3.83% | 3.75% |
| 10-Yr. TCM | 4.25% | 4.35% | 3.85% |
| Federal Cost of Funds |
3.694% | 3.677% | 4.003% |
| 30-day SOFR (daily value) | 4.35541% | 4.34967% | 5.35353% |
| Moving Treasury Average (MTA/12-MAT) |
4.108% | 4.153% | 5.045% |
| Freddie Mac 30-yr FRM |
6.56% | 6.72% | 6.35% |
| Historical ARM Index Data | |||
It is unfortunate that haphazard tariff implementation has created so much uncertainty, which is no doubt impacting hiring by businesses. It is notable that the sharp deceleration in hiring began in May, just weeks after the "Liberation Day" (and subsequent) announcements upended things. At the same time, increases in levies have helped re-firm (at least) inflationary pressure, which would normally call for the central bank to hold pat or even increase rates to get price trends better aligned with their goals.
It is by no means clear that the Fed lowering rates will have the desired effect of improving hiring, since interest rates can do little to solve the uncertainty issue. However, there is a possibility that lifting the economy from what appears to be an already fair level could help inflation persist for longer or even continue to step higher from here, at least for a time, and that would continue to make it difficult for longer-term rates to fall very much.
If you're hoping for lower mortgage rates in the market, it bears remembering that the lowest rates come during the poorest economic climates, and that the Fed taking corrective steps to address economic weakness can help stabilize or even lift longer-term yields, sometimes considerably. You need look no further than last fall to see that dynamic at work.
But brightening skies as a result of any Fed action still feels like tomorrow's problem. For now, this week's disappointing labor reports have put at least some additional downward pressure on longer-term bond yields and mortgage rates. With the annual labor benchmark revision on Tuesday a real wildcard, we think we'll see a 5-7 basis point decline in the average offered rate for a conforming 30-year FRM as reported by Freddie Mac come next Thursday.
As the darkness again creeps in and cooler temps begin to show, what's the outlook for mortgage rates? See our latest Two-Month Forecast for mortgage rates covering September and October.
You can also check out the mid-year review to our 2025 Mortgage and Housing Market Outlook, covering mortgage rates, housing conditions, the Fed and lots more.
Also, for a really long-run outlook, you'll want to review "Federal Reserve Policy and Mortgage Rate Cycles".
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