Economist: Good Jobs Report Not Good Enough to Stop Recession

Friday’s jobs report was better than expected, but the nation is still likely to be entering a recession early next year, an economist said.

The U.S. Bureau of Labor Statistics reported Friday that the economy gained 263,000 jobs in November after seasonal adjustments, and the unemployment rate was 3.7%, unchanged from October and down from 4.2% a year earlier.

Mike Fratantoni, chief economist for the Mortgage Bankers Association, said those two numbers were better than expected, but the MBA is sticking with its forecast of a recession in the first half of next year.

“While the payroll survey showed a slower pace of growth, the household survey again showed an outright decline in employment — with a drop of 138,000 in November,” Fratantoni said. “With other data showing declines in job openings and increases in announced layoffs, we do expect further weakening ahead, with the unemployment rate likely to reach 5.5% by the end of 2023.”

Fratantoni also cited the 5.1% gain in wages over the past 12 months, which was higher than many expected.

“Although wage growth picked up last month, it remains below the pace of inflation, meaning that households will increasingly have a difficult time managing these higher costs,” he said.

NAFCU Chief Economist Curt Long said the accelerating wage growth “dents hopes that inflation has peaked and that the Fed will begin rapidly decelerating rate hikes.”

Long said he expects the fed funds rate will exceed 5% in 2023 before the Federal Open Market Committee is comfortable pausing rate hikes. The FOMC’s next meetings are this Dec. 13-14 and Jan. 31-Feb. 1 of 2023.

In late October, the MBA cut its forecast for mortgage originations over the next two years, and predicted a recession would start in the first half of 2023. The MBA’s Nov. 21 forecast cut its projections further, saying lenders will originate $1.98 trillion in total mortgages next year, down 12% from 2022 and 3.5% less than it expected in its Oct. 24 forecast.

Fratantoni said a weaker job market will reduce demand for houses.

“However, reaching the Federal Reserve’s goal of reducing inflation will be a benefit to those still in a position to buy a home, as it will bring down mortgage rates and improve affordability,” he said.