US Labor Market is... Laboring
Welcome to the weekly Skeptical Investor BP article! A frank, hopefully insightful, dive into real estate and financial markets. From one real estate investor to another.
-------
This week, we’re talkin’ more shenanigans with our government employment data, a spotlight on construction workers, and the coiled spring that is the housing market.
Let’s get into it.
--------
Today’s Interest Rate: 6.28%
(👇.22% from this time last week, 30-yr mortgage)---------
The Weekly 3 in News:
- - Housing Inventory has started to decline. “While national active inventory is still up YoY, the pace of growth has slowed in recent months… some sellers have thrown in the towel (Lambert).”
- - Tennessee News - Google announces Tennessee as site for small modular nuclear reactor. 50 megawatts could be coming by 2030 (Reuters).
- - Nashville News - What cities are growing and which are not so far in 2025? Take a look. Nashville is an all-weather economy, growing steadily (Eisen).
-------
Labor Market Starting to Stumble
Hot off the presses this AM: the economy added -911,000 fewer jobs than initially reported during the 12-month period ending March 2025. The largest negative revision in 20+ years.
Yes, this is how the job data is collected, reported, and revised.
Yes. We are just finding this out now.
Yes, this is an insanely archaic process in 2025.
How inaccurate are we at reporting jobs data?
For historical sake, here is a chart showing just the revisions in the job numbers. The over at the BLS. Just look at how wrong they are, it often drastically overestimate jobs numbers, only to revise them down later.
This is the 3rd catastrophically large revision dating back to the Fall of last year. We have now erased ~2 million phantom jobs we thought had been created.
This is crazy.
Why the Revisions?
Each month, the BLS estimates job additions based on employer surveys. However, these initial figures are later refined using “better data” (known as the Quarterly Census of Employment and Wages (QCEW), which provides a clearer picture of employment trends. The preliminary estimate, released in August or September, offers a preview of revisions for the prior 12 months ending in March. A final revision follows in February, incorporating this data and adjustments to the BLS’s “birth-death model,” which accounts for the creation and closure of businesses.
This is why I have disdain for surveys; they do not produce accurate data.
Unemployment Rate Unaffected
Importantly, these job revisions will not impact the unemployment rate, which is derived from a separate household survey…
Cool… more surveys. What could go wrong there?…
Why This is Important
Accurate data is extremely significant for businesses so they can make informed decisions on hiring, allocating capital, investing, research and development, etc. The same applies to how the government and the Federal Reserve react. Federal Reserve Chair Jerome Powell has reminded us time and time again that they are “data dependent.”
Well. What if the data is wrong? (And being late leads to the same outcome).
For example, we now know that there was virtually no job creation last year. So, the Fed would have very likely started cutting in February if it had accurate data.
This latest report gives credence to the White House firing the head of the BLS, illustrating their data collection methods as flawed. In fact, the White House is now preparing a report laying out alleged shortcomings of the Bureau of Labor Statistics’ jobs data, five weeks after President Trump fired the chief of the agency (WSJ). This is politically concerning and certain to stir more short-term uncertainty in the market, but it is also likely necessary. We can’t keep doing this.
+ Job Cuts Worse in August
Numbers for job cuts were also recently released for August and they too add to the narrative of a weakening labor market.
U.S. businesses announced 85,979 job cuts in August, up 39% from July and up 13% YoY, according to executive coaching firm Challenger, Gray & Christmas. August’s total was the highest for the month since 2020 (115,762 job cuts). Before 2020, it was the highest August total since ‘08.
Year to date, companies have announced 892,362 job cuts, the highest YTD since 2020 (1,963,458). Importantly, YTD 2025 cuts are up 66%, vs the 536,421 job cuts announced through the first eight months of 2024.
Job Openings vs Unemployment
Lastly, we just crossed a significant line: the number of job openings per unemployed person just dipped below 1, for the first time since April 2021.
In other words, total unemployment may still be low, but the clear trend is to the downside.
Sector in Spotlight: Construction Workers
Construction workers are both important for us real estate investors to track, and are a bellwether data point. Cuts in construction jobs usually frontruns a recession.
Case in point: Construction workers are not feeling secure in their job today. Recent JOLTS data shows they are quitting at below 1%.
And perhaps for good reason. Construction labor just ticked down, ever so slightly, by 3800 jobs. Now, this is admittedly a very small number, but losses in construction jobs are a rare occurrence and again usually a leading indicator of overall economic weakness (ResiClub).
Ok, whew, that was a lot. Now, let’s look at the bright side, after that Doctor Doom labor market moment.
Silver Lining #1: Wages and the Consumer
Despite a slow uptick in unemployment to 4.3% (anything below 5% is considered “full employment”)…
…Wage growth has remained robust. Still growing at 3.7%, much faster than overall price inflation. In fact, wage growth has been higher than consumer inflation for 2+ years, even faster than shelter costs.
Silver Lining #2: Interest Rates and Bond Markets are Playing Ball
We have officially come full circle on interest rates, this without another rate cut from the Federal Reserve and amidst all the fun trade, tariff, international turmoil etc… We are now back to last year’s levels. A great chart (Robertson):
Today’s interest rate: 6.28%
New Coffee Table - Part Zwei.
And I know you all want to see it. Here is the finished product from last week. Live-edge coffee table.
Sandpaper and poly are magical.
My Skeptical Take:
For us real estate investors, the implications of a softening labor market are relevant.
In short, we may finally see, after 3 damn years of high interest rates, the bond market and Federal Reserve work together and stop the vigilante infighting. They both care most about labor, even over inflation and it is starting to bring them together.
Just look at the spread between the 10-yr Treasury bond and mortgage rates (which track each other), today at a 3 year low, now dancing in tandem down the water spout.
And there is MUCH room to compress spreads. Today’s spread is 2.23%. The historical average is 1.76% (since the 1970s).
This means, even IF the Fed does not cut rates, and/or the bond market does not play ball, mortgage rates could normalize down to 5.81%!
What happens when the Fed starts to cut again, as I still expect them to do in September and likely again before year’s end?
We would be in the 5% range. Perhaps by Spring (as I predicted earlier this year 🤞).
Housing Demand is Coiled like a Cobra
There is plenty of pent-up demand from investors and homebuyers alike, coiling like a spring ready to be released once interest rates come down. And the longer the coiling, the bigger the jump when released.
We are now in year 3 of suppressed demand. That is quite the winding-up period.
Anecdote from the Arena - I had 2 real estate investor clients outbid this week on reasonable offers. The interesting thing, both were on properties that had been sitting on the market 90 days+. What are the odds that another higher offer would come in right when we were offering? What does this mean?
More investors are returning to the market now that rates are under 6.5%.
My advice: Start looking for your next deal.
The coil may be unwinding already.
Until next time. Stay Curious. Stay Skeptical.
Herzliche Grüße,
-The Skeptical Investor
Comments