Category: Uncategorized

Revelio Labs — Labor is Still Softening

Revelio Labs — which we respect a lot — publishes their own “Jobs Report” by tracking over 100 million U.S. profiles. That’s roughly two-thirds of the workforce. Compare that to BLS — which captures only 27% — and the Household Survey, which is literally 60,000 phone calls (0.03% of the labor force).

Revelio is a much broader read — and their data still shows labor weakening.

They reported 9,000 job losses in October — and they revised September down even further, from 27,000 to -33,000. That’s meaningful deterioration.

Keep in mind — Revelio may be catching weakness ADP isn’t — because Revelio does include government workers. And we’re now seeing that show up in Federal continuing claims — which just hit the highest since 2019.

ADP also isn’t fully capturing big layoffs from massive enterprise companies if they’re not ADP customers — and we’ve seen real cuts from major tech names.

On top of that — Indeed is showing job openings at the lowest levels since February 2021.

So the signals everywhere are leaning soft.

Yet — some Fed members are still downplaying this. Cleveland Fed President Beth Hammack said the labor market is “OK” and “stable.” She’s not worried about labor — but she is very focused on inflation — without properly adjusting for temporary tariff distortions or the known overstatement from shelter and portfolio management.

She thinks policy is barely restrictive — if at all — and she’s clearly not in favor of a December 10 cut.

But New York Fed President John Williams — who is always a voter — did shift his stance recently.

He now says R* — the neutral rate — is lower than he previously believed. Previously he had assumed R* at ~0.75% — at the high end of the Fed distribution. Now he believes it has moved lower and will continue to move lower.

That matters.

Williams’ updated view implies the Fed is actually more restrictive than he thought — and that there is room to cut further before getting near neutral.

Translation for mortgage markets:

Revelio’s labor signal leans dovish.

Williams’ shift on R* leans dovish.

Hammack’s messaging leans hawkish — but she’s ignoring known distortions.

Net: The data is softening — even if some Fed voices are pretending it isn’t.

Fed Comments

Kansas City Fed President Jeffrey Schmid was on CNBC this morning explaining why he dissented on Wednesday — he didn’t want the 25bp cut. And based on how he framed things, if a cut is proposed in December, he’ll likely dissent again.

Schmid’s read on inflation is overstated. He called Core at 3%. But Core PCE is 2.9% — and Powell even suggested Wednesday that the unreleased data would have printed closer to 2.8%.

Importantly — Schmid is ignoring what Powell himself has repeatedly acknowledged: tariffs alone are temporarily adding ~0.3% – 0.4% to inflation, and shelter + portfolio management are still overstating inflation as well.

When you strip out those distortions, “real” Core PCE is effectively right at 2% YoY.

He also argues the labor market is “in balance.” That’s just not what the data is showing. BLS has been weak, ADP has shown job losses in 3 of the last 4 months, and June payrolls from BLS were outright negative. Yes — immigration increased labor supply — but if hiring slows and layoffs broaden, supply doesn’t matter because it’s not being absorbed. And major companies — like Amazon and Microsoft — have announced layoffs recently.

Schmid claims policy isn’t restrictive because stocks are at all-time highs and CapEx is strong. But that misses the point — AI is doing the heavy lifting there. AI is the catalyst — not Fed policy. We’ve seen hundreds of billions in AI capital commitments in just the last 48 hours — NVIDIA, Meta, and more. And even here in our own industry, mortgage companies are investing heavily in AI.

A 25bp difference in the Fed Funds Rate is not going to make or break that spend. If you don’t invest in AI, you fall behind. It’s existential — not marginal.

Schmid votes again one more time on December 10 — and odds are he’ll vote against another cut.

Dallas Fed President Lorie Logan, who votes next year, also leaned hawkish. She said it’s hard to support another cut in December, arguing the downside labor risk has already been addressed with the cuts we’ve already gotten — and that the outlook doesn’t call for more. She believes the labor market is balanced as well — which, as we laid out above, we disagree with.

She also says inflation is still too high and taking too long to reach target.

But here’s the bigger overlay:

if the government shutdown continues and the Fed doesn’t get the data they need ahead of December 10 — they are not going to cut blind.

And starting tomorrow — SNAP benefits begin to run out. 42 million Americans will lose at least some of their food assistance. That is going to create noise — calls to Congress — and potentially enough political pressure to end the shutdown faster.

Bottom line for rates:

the macro data backdrop is more dovish than Schmid and Logan are portraying — but if the Fed doesn’t have fresh data in hand by December — process alone could keep the December cut off the table.

Consumer Price Index — September Update

The September CPI report came in slightly cooler than expected, showing overall inflation rising 0.3% for the month, one tenth below forecasts. On a year-over-year basis, inflation ticked up from 2.9% to 3%, a touch softer than the market’s expectation of 3.1%. The biggest driver of the monthly gain was energy, which climbed 1.5%, fueled entirely by a 4.1% jump in gasoline prices.

The Core CPI, which excludes food and energy, increased by 0.2%, also one tenth below expectations. Year over year, Core inflation eased from 3.1% to 3%, another positive sign that inflation pressures continue to moderate.

The standout component continues to be shelter, which makes up 44.4% of the Core index. This category helped keep inflation in check, rising just 0.2% for the month. Within that, Owners’ Equivalent Rent (OER)—the largest subcomponent at 33% of Core—rose a modest 0.1%, far cooler than recent trends. This aligns with what we’ve been expecting: a gradual return of shelter data to more realistic levels, helping drive Core inflation lower.

Rent prices rose 0.2%, or roughly 2.4% annualized, now much closer to real-time rent tracking measures. Lodging away from home rose 1.3%, but we anticipate this will ease in coming months as hotel demand and pricing soften.

If we remove shelter entirely, everything else in Core CPI increased just 0.11% for the month and 1.48% year over year—a strong indication that inflation is cooling beneath the surface. While goods prices remain slightly higher due to temporary tariff effects, continued normalization in shelter and OER should keep inflation trending lower.

Why Adjustable-Rate Mortgages Deserve a Closer Look

 

Adjustable-Rate Mortgages (ARMs) have been gaining real momentum, making up a growing share of total loan applications. As the Fed continues to ease and rates trend lower, that momentum will likely build.

Many borrowers shy away from ARMs because of their variable nature after the fixed period—but the math often tells a different story. Even in a conservative or “worst case” scenario, ARMs can outperform fixed-rate loans for years beyond the initial fixed term, thanks to the savings they provide upfront.

To help illustrate this, we’ve added a new ARM vs. Fixed comparison tool under the Calculators section of our website. It’s designed to make it easy to show clients the real numbers behind the decision—why an ARM can often make more financial sense.

In our recent video walkthrough, we ran a scenario using standard 5/2/5 caps on a 7/1 ARM. Even assuming rates rise 5% in year eight—a pretty aggressive move—the ARM still outperforms the fixed for roughly 8.5 years. Historically, over the past 40 years, ARMs have consistently proven to be the better value.

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Looking Ahead

 

Next week, we’ll finally start to see some key economic data again. The Bureau of Labor Statistics had to bring in emergency staff to get the Consumer Price Index (CPI) report out on time, as it’s needed for the Social Security Cost of Living Adjustment (COLA) calculations before November. We’ll be watching closely to see what it says about inflation and how it might shape rate trends moving forward.

National Retail Federation Report

 

With federal data releases on pause, market watchers have been relying more on private sector reports for clues on the economy. The National Retail Federation’s (NRF) version of September Retail Sales showed a broad and meaningful pullback in consumer spending — a sharp contrast to the resilience we’ve seen all year.

While it’s normal to see a slowdown between back-to-school and the holiday season, this could also be an early signal that the consumer is starting to tap the brakes. The NRF downplayed the weaker numbers, expressing confidence that spending will rebound, but we’ll be watching closely to see if this softness carries into Q4.

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Cash Buyers Cooling Off

 

Cash buyers have made up roughly one-third of all real estate transactions this year — but that number is starting to edge lower. A big reason could be the recent drop in mortgage rates, which makes financing more attractive even for those who could pay in cash.

We’re also seeing more participation from first-time buyers and other rate-sensitive borrowers, which is a healthy sign for the housing market. Fewer all-cash purchases mean more mortgage activity — a welcome shift for our industry.

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Looking Ahead

 

The Bureau of Labor Statistics was originally expected to delay its key reports due to the government shutdown, but the agency is now working to release September’s Consumer Price Index (CPI) — a critical input for Social Security adjustments due by November 1. While the release may slip from its scheduled October 15 date, it does appear we’ll get it this month.

Here’s the tentative economic calendar for next week:

• Monday: Markets Closed (Columbus Day)

• Wednesday: Mortgage Applications, Consumer Price Index (CPI)

• Thursday: Producer Price Index (PPI), Retail Sales

• Friday: Housing Starts & Building Permits

 

As always, we’ll keep an eye on how these reports shape market sentiment and the Fed’s path forward — both of which directly influence mortgage rates and borrower affordability.

Fed Talk

Chicago Fed President Austan Goolsbee joined CNBC this morning with some mixed messages on the labor market. He first described conditions as “pretty stable,” only to later admit they’re deteriorating. We’re not sure what more the Fed needs to see to acknowledge that the labor market is weakening — ADP has reported job losses in three of the past four months.

Goolsbee also discussed the Chicago Fed’s new unemployment indicator, which estimates the jobless rate would have held steady at 4.3% in the latest BLS report. But the actual reading sits at 4.34% — just a fraction away from rounding up to 4.4%. The internal probability breakdown even showed a strong chance of 4.4%, which raises some eyebrows, since a higher number would have added real pressure on the Fed.

Digging deeper, the Fed’s own charts show a clear trend: layoffs are rising, and hiring among the unemployed is slowing. It’s hard to square that with the “stable” narrative the Fed continues to push.

On inflation, Goolsbee said he’s concerned about the uptick in services prices. But most of that move came from Owners’ Equivalent Rent — a survey-based estimate of what homeowners think they could rent their homes for. It’s a questionable metric, and it’s overstating Core PCE inflation by roughly 0.3%. Add in the impact from tariffs (another 0.3% to 0.4%) and Portfolio Management fees (around 0.3%), and you’re looking at several artificial boosts to the reported 2.9% Core PCE number.

When you strip out those distortions, Core inflation is closer to 2.0%—or even 1.9% depending on how you account for tariffs. That’s right in line with real-time gauges like Truflation, which shows overall inflation hovering near 2%. Meanwhile, oil prices have fallen sharply, with WTI crude back near $60.

All told, the data supports a strong case for a 25bp rate cut at the Fed’s October 29 meeting.

We also heard from New York Fed President John Williams, who said bond buying remains a normal part of the Fed’s toolkit. Notably, he didn’t exclude mortgage-backed securities (MBS) — opening the door for potential quantitative easing if the economy softens. That would be very supportive for mortgage rates going forward.

Personal Consumption Expenditures (PCE)

The Fed’s favorite inflation gauge, PCE, showed headline inflation rising 0.3% in August, coming in a touch hotter than expected. On an annual basis, the rate edged higher from 2.6% to 2.7%, exactly in line with market estimates.

Core PCE—which strips out food and energy and is the Fed’s main focus—rose 0.2% on the month, while the year-over-year figure held steady at 2.9%. Both met expectations.

Looking under the hood, the 3-month annualized Core PCE run rate is still elevated at 2.9%, likely reflecting the temporary impact of tariffs, while the 6-month run rate sits at a more moderate 2.48%.

Shelter costs continue to weigh heavily on the data. Shelter rose 0.36% last month and 3.9% year over year, with rents up 0.3% and Owners’ Equivalent Rent up 0.38%. But real-time rent trackers show blended rents closer to 2.5% year over year. Given Shelter’s heavy weighting in Core PCE, this means the reported 2.9% Core PCE is overstated by roughly 0.3%—true inflation is likely closer to 2.6%.

Looking ahead, September’s PCE (due at the end of October) may be another challenging report, since it will be replacing a relatively low 0.28% Core PCE from last year.

Income and Spending

Personal incomes rose 0.4% in August, while consumer spending increased 0.6%, both slightly stronger than estimates. The savings rate ticked down from 4.8% to 4.6%.

Potential Government Shutdown

If Congress doesn’t pass a funding bill by October 1, a government shutdown will begin. That could impact the release of key economic data. We’re likely to still see JOLTS and ADP, but Jobless Claims and the all-important BLS Jobs Report may be delayed, depending on how funding is handled for the BLS.

Cotality Rent Index

Shelter costs—mainly rent—make up the largest portion of both CPI and PCE, which is why the latest Cotality Rent Index is so important. Rents rose just 0.2% in July, well below the historical average of 0.7% for that month. On a year-over-year basis, rent growth slowed from 2.9% to 2.3%, a meaningful deceleration.

If these real-time rent measures (similar to Zillow’s blended rent data) were incorporated into CPI and PCE, Core CPI would be 0.5% lower, and Core PCE would be 0.3% lower. This reinforces the view that official inflation readings are overstating shelter inflation and should continue easing over time.

Minneapolis Fed President Kashkari

Neel Kashkari, who will become a voting member next year, weighed in on CNBC this morning. He expects shelter costs and other services to keep trending lower, ultimately pushing inflation back toward 2%. He noted tariffs are delaying the timeline but sees them as one-time price shocks.

Kashkari supported two additional rate cuts this year, aligning with the nine “dots” on the Fed’s dot plot. On the labor market, he described conditions as fragile, with limited hiring reported by his business contacts.

Conference Board Leading Indicators

The Conference Board’s Leading Economic Indicators fell 0.5% in August, hitting an 11-year low. Their updated forecast calls for 1.6% U.S. growth in 2025, consistent with the Fed’s projections. Slower growth should be supportive for Bonds and mortgage rates, though they are not calling for a recession at this stage.

Atlanta Fed Wage Tracker

Wage growth in August held steady at 4.1%, unchanged from July and down from 4.6% a year ago. For Job Stayers, wage gains slowed to 3.8% from 4.1%, while Job Switchers saw a pickup to 4.4% from 4.0%.

The Cost of Waiting

With inflation stabilizing, the labor market cooling, and the Fed all but confirming a rate cut for their September 17 meeting, mortgage rates improved quickly. But remember—markets are forward-looking. Much of this move has already been priced in, and history shows that these windows of lower rates don’t stay open long. Timing is critical, and the opportunity could be just a few days.

ECB Update

Across the Atlantic, the European Central Bank held rates steady at 2.0% in a unanimous decision—no surprise there, given markets had priced in a 99% chance of a pause. The real surprise came in the form of stronger growth projections, with 2025 GDP revised up to 1.2% from 0.9%.

BLS Jobs Report – Weak Across the Board

The August Jobs Report came in far softer than expected. The BLS showed just 22,000 jobs created, well below estimates of 75,000. Prior months were also revised down by a net 21,000, with June now showing a negative number – breaking a 54-month streak of job gains.

A big factor was the Birth/Death model, which added 90,000 jobs. Without it, headline job growth likely would have been negative. Healthcare and Social Assistance made up nearly all the gains, with 47,000 jobs added – an area that had looked weaker in the ADP report.

The Household Survey told a different story, showing 288,000 job gains, but it remains volatile after reporting 863,000 job losses over the prior three months. Importantly, the unemployment rate ticked higher from 4.2% to 4.3%, in line with expectations. However, the quality of jobs was concerning – 357,000 full-time jobs lost offset by 597,000 part-time jobs gained.

Signs of strain are building. The average length of unemployment rose to 24.5 weeks, the highest since April 2022. Part-time workers unable to find full-time positions climbed to 1.3M, near Covid-era highs. The broader U-6 unemployment rate moved up to 8.1%, the highest in almost four years.

The JOLTS report earlier this week also pointed to weakness, with job openings per unemployed worker dropping below 1 for the first time since 2018 (ex-Covid). Even with some overcounting in openings, the takeaway is clear: there are now more unemployed people than available jobs.

On the wage side, Average Hourly Earnings rose 0.3%, right in line with expectations, but year-over-year growth cooled from 3.9% to 3.7%. The average workweek held steady at 34.2 hours. Together, this brought weekly earnings growth down to 3.4% year over year.

What this means for rates: With a soft labor market and cooling wage pressures, the Fed is under pressure to act. Markets are now pricing in a 100% chance of a 25bp cut in September, followed by high odds of additional cuts in October and December. We’ve been calling for three cuts this year, and the data is increasingly lining up with that outlook.