Employment Trends

Last week the unemployment rate unexpectedly dropped to 4.4% from 4.6%. Many economists were expecting a rise to 4.7%. Overall employment data has also been strong in recent months (primarily due to strong upward revisions to August and September data). The Fed is unlikely to begin dropping interest rates until they see job growth slow and the unemployment rate rise.

In our opinion, the 4.4% unemployment rate is probably wrong and we'll see reversal of that begin next month. Evidence for that includes very weak housing-related employment and various diffusion indexes that show a slowing in employment. Also, the initial jobless claims jumped in the latest week from 309,000 to 327,000. These patterns should eventually be reflected in the unemployment rate. Housing related employment usually follows housing starts with a lag. Starts rolled over in April but housing units under construction only rolled over in August. This suggests housing employment is poised to slow significantly in the next several months.