Rising Unemployment Could Spill Into Real Estate (But By How Much?)

0:00In the last few weeks, several reports have come out showing that the job market in the U.S. is weak, and it's getting weaker. And the labor market is tied to the housing market and to the overall investing climate in all sorts of ways. So today, we're diving into the latest labor market news and how it's going to spill over into the world of real estate investing.

0:26hey everyone i'm dave meyer thank you all so much for being here for this episode of on the market i am super glad to have you on today's episode we're diving into the world of the labor market there has been a lot of news coming out over the last couple of weeks and we need to make sense of it because there's a lot of different reports that show us different things and each of those reports and the data that's contained within them do have real impacts on the housing market and the investing climate. And I know that's not always immediately obvious, but it's definitely true. The labor market is connected to the housing market and mortgage rates in some pretty direct ways.

1:08And so that's what we're going to get into today. Let's jump right in. All right. So let's talk about the reports that have come out. And there are a lot of them. And I'm going to go through a couple of different sources here, maybe more than I do when we're talking about other subjects on this show for some important reasons. And that's because there are many different ways that the labor market is measured because it's so important. There's tons of different ways that economists, analysts, government bureaucrats look at the labor market, but none of them are perfect. Each of them has a very specific measurement that captures some things, doesn't capture everything.

1:46No collection method is perfect. And so what I want to do in this episode is look at the total universe of labor market data, all that we know about the job market and see if we can distill a trend. And if we can distill a trend, even though no single source is perfect, then we can start to extrapolate what might happen and how this is going to impact investors. So that is the plan here. The first thing that sort of got me to want to make this episode was that, as happens every single month, the Bureau of Labor Statistics, this government agency, released the August 2025 data, and it wasn't good.

2:27What it showed was that non-farm payrolls, this is just basically a way of measuring jobs, added 22 ,000 jobs in August. And although it wasn't good, it's still positive. That's better than the economy losing jobs. But it was the weakest monthly gain for jobs in the U.S. that we have seen in several years. Just a couple of years ago, we were regularly seeing 150 ,000, 200 ,000. There were a couple of prints that were 250 or 300 ,000 jobs in a single month. And that's remarkable. So only seeing 22 ,000, although not emergency levels by any means, it is a very big decline from what we have seen over the last couple of years and has been much more consistent with what we've seen in the last four months.

3:17So basically, May, June, July, August have all been pretty weak. And that has, you know, starting to establish a trend. Along with that report, we also have seen that the unemployment rate, again, has pros and cons. It's not a perfect measurement of what's going on in the economy, but it's an important data point that we should look at. Unemployment rate has gone up. It is up to 4.3%. It was at 3.8 % back in May, 4.1 in July. So it's going up and it's going up like relatively rapidly. Should mention 4.3 % unemployment rate, historically speaking, still super low. So I want to keep that context for everyone that we're not in some emergency situation here, but it is important to note that it is going up and it's gone up kind of quickly over the last couple of months.

4:06So those are the first two things that came out in that report. The third thing that happened is there were revisions to previous reports on the BLS data. And we'll talk about revisions in just a minute and how many people are questioning the data that comes out of the BLS. We'll talk about that in a minute, but just want to state what happened. And basically, BLS, they released and revised their numbers for June. And instead of showing positive growth in June, it showed actually that the economy had dropped 13 ,000 jobs in June. That was a pretty big piece of news because, again, we have just seen amazing job growth in the United States for, honestly, a decade now.

4:45And so seeing a negative print for one month is a pretty important break in that trend. So that's what was going on with the BLS data. As I said, BLS, under some scrutiny, we're going to talk about that. But I wanted to just go through the other labor market data that we have right now. There is another very watched jobs report that comes out every month that's called ADP Private Payrolls. ADP is a payroll company. If you work for a corporation, you've probably been paid by ADP. They do all the piping and plumbing behind a lot of payroll in the United States. And they do these surveys and they have all this data that they release jobs numbers every single month.

5:25And what they showed was an ad of 54 ,000 jobs. So BLS showed 22 ,000 jobs. ADP showed 54 ,000 jobs. And it's important to note that basically the ADP numbers and the BLS numbers are never the same. They just have different methodologies. So you shouldn't expect them to be the same. What you look for as an analyst in these situations is, are the trends the same? If they're both sort of like going down a little bit every month, you kind of believe that that's the trend, even though the absolute numbers can be different. And that's basically exactly what we're seeing. ADP is also showing a similar trend to the government data that jobs numbers are going down.

6:06They show a little bit higher, especially in service industries like leisure and hospitality and construction, but they're showing another trend. Those are the big ones. We also got other data. There's another report that I like to look at called the JOLTS, which is basically the number of job openings in the United States. That is still a remarkably high number at 7.18 million, but that's the lowest since 2020. And we've sort of crossed this really important threshold with JOLTS because they released this ratio that is how many job openings are there in the United States? How many job seekers are there in the United States?

6:46And they compare those two things. And for the first time in a long time, there are more job seekers in the United States than there are job openings. It's basically flat. We're at 99%. So it's very, very close. But this is a threshold that has really changed in the last couple of years. Back in 2022, there was 1.8 jobs for every American looking for a job. Now, there is basically one-to-one jobs to job seekers. And then we've had two other important data points come out in just the last couple of days. We got a big revision for basically the entire year from March 2024 to March 2025, showing that there are actually 900 ,000 fewer jobs added during that period than was initially reported, which is a huge revision and showing that the labor market has actually been a lot weaker than we've been thinking for at least a year, if not longer.

7:46Then just as of September 11th, we got new initial unemployment claims, which is basically a measurement of layoffs. That spiked. I never trust one week of data too much. So we'll see if that continues. But it's another data point. My point in all of this is that no matter how you look at it, you want to look at government data, you want to look at private data, you want to look at jolts, you want to look at unemployment claims, all of these things, no matter how you look at it, show a weakening labor market. And although this is concerning and is something that we need to talk about, and obviously we're doing that on this episode, this isn't surprising.

8:24When the Fed raises interest rates as much as they have, when you have things like AI entering the economy, the idea that we were going to maintain some perfect job labor market is crazy. And honestly, I think the American labor market has been incredibly resilient over the last couple of years. If you had asked me, would we have a 4.3 % unemployment rate in September of 2025 when the Fed started raising rates in 2022, I would have thought it would have been higher or we would have already gone through a recession by now. So I have been continuously impressed by the labor market and seeing labor weaken at this point in the interest rate tightening cycle is not only surprising, I actually think it's a credit to the strength of the U.S.

9:14economy that it has taken this long for the labor market to weaken, given everything that's been going on. Now, before we move on, I do want to just talk a little bit about the BLS data because you've probably heard. But on August 1st, President Trump fired the commissioner of the Bureau of Labor Statistics. This is the institution in the U.S. responsible for collecting data across a number of things. But President Trump basically said that he didn't believe the jobs numbers and that he felt that they were incorrect and they had bad methodology. Now, the BLS has been under scrutiny for a long time.

9:54They issue these massive revisions like the nine hundred thousand job revision that they just put out. And those revisions are frustrating. No one likes them. And I do think, you know, even if they are doing the best that they can, it does damage your credibility when you, you know, come out with these massive revisions months later. But I've sort of dug into the methodology. And basically what's been happening at the BLS is they rely on businesses to reply to their surveys. And the number of businesses that reply to these surveys has tanked. And so they're doing a lot more extrapolation on the data than you would hope.

10:32you would want, ideally, you survey 100 businesses, all 100 respond to that. Now, what we've heard is that instead of 100, let's just say it's 50 or 60 businesses, and they have to extrapolate from what they learned from those 50 or 60 for the other 50 or 40 companies that they surveyed. And then sometimes the companies respond late, and that's how you get these revisions. And so it is frustrating. I don't like it. No one likes it. But I don't have any evidence that the BLS is intentionally changing or cooking the books. It's just that getting this data is pretty challenging. And although, again, I don't like revisions, I would rather a data source revise their data and admit that it was wrong than just do it once, know it's incorrect and not revise it.

11:22And so that's just unfortunately how it works. It's not the best and it really stinks for investors and people who watch this stuff. But I don't have any evidence that this is somehow malicious. But hopefully, you know, if we're getting a new BLS commissioner, maybe they'll be able to figure out some new methodology that will improve upon this. So we'll see what happens with this. Trump has nominated a new BLS commissioner. They have not been confirmed yet by the Senate. So we don't know exactly what is going to happen. But let me just say, as a data guy, I hope that we figure out ways to maintain neutrality, no political affiliation to the BLS, and that they're able to improve upon methodologies and get good neutral data to the market in a timely fashion.

12:08I will update you as we learn more about that, but that's what we know so far. All right, so with that said, we know that the labor market is weakening. But what does this mean for real estate investors? We're going to get into that right after this quick break. Some listeners may wonder why their insurance quote only took 30 seconds. Some listeners may wonder why their insurance quote took 30 seconds. A better question is, how long will that policy actually hold up when you need it? At NREG, the goal isn't just getting coverage in place. It's making sure your investment property is properly protected when a real claim happens.

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15:19Welcome back to On the Market. I'm Dave Meyer. Thanks so much for being here. We're talking about the labor market and how, although we're certainly not in any sort of emergency mode, the labor market is weakening. And we're now going to shift our attention to what this means for the housing market and for real estate investors. The first thing that we need to look at is sort of the immediate macroeconomic implications. And as you are all living through this week, that comes with the Fed cutting rates. Now, we've known for a couple of weeks now, we've gone for a couple of months now that the Fed was likely to cut rates.

15:56But their main things that they're looking at are inflation and labor market. And when the labor market starts to weaken, the probability of rate cuts go up. And so that's why everyone has basically known for a couple of weeks that the Fed was going to cut rates and mortgage rates moved down in anticipation of that cut. And so even though the Fed cut rates, a lot of the mortgage benefits to that are already baked in. Now, what happens from here is going to be a really interesting question because we know now that there are rate cuts in September. But what we don't know is how many more rate cuts there are going to be.

16:31You see a lot of people speculating that there will be between one and three more rate cuts. And it's really going to come down to this sort of standoff that we have in the economy between inflation and the weakening labor market. The Federal Reserve has this dual mandate from Congress. Their two jobs are to maintain price stability, that's just legal speak for controlling inflation, and maximizing employment, which is trying to stabilize the labor market. Those two things sometimes are easy to balance. If you have a really weak labor market and no inflation, then you cut rates. That helps stimulate the labor market and probably won't impact inflation.

17:15Or the other way around, like we saw a couple years ago, inflation was insane and labor market was doing strong. that allowed the Fed to raise rates really aggressively, which is exactly what we saw. But right now, there is a standoff going on. We are seeing a weakening labor market. And at the same time, we are seeing inflation go up. Just this past week, we saw that in August, the CPI, the Consumer Price Index, went up to 2.9%. Again, not emergency levels, but it went up from 2.7 % a month earlier. So it's trending upward. We also saw the monthly data at 0.4%. And we don't know if that will continue.

17:55But if we had 0.4 % increases every month going forward, then a year from now, inflation will be closer to 5%. And that is pretty concerning. So the Fed finds itself in a dangerous position. And if you haven't heard of this term before, we have the sort of just the inkling of what is called stagflation, which is a situation where inflation is high and you enter a recession or the labor market is weak. And I want to be very clear that I do not think we are yet in a point where we are like actually in stagflation. But as a data analyst, which I am, if you were just looking at this data objectively and you see inflation going up and unemployment going down, some alarm bells probably start going off in your head about stagflation.

18:39Now, there are a million things that can happen to intervene and, you know, the chance that we get into a really bad stagflationary environment. I think it's really too early to say that that might happen. But this does put the Fed in a tough spot, right? Because they can't just lower rates with reckless abandon trying to stimulate the labor market because that can overheat the economy and push inflation up. That's not good. At the same time, they can't just keep rates high to fight inflation because the labor market is clearly cracking. And so what I think we're going to see is a very measured Fed response.

19:16So we're getting a cut. I still think there's a chance that they cut again or two this year, but I don't think we're going to see rapidly declining interest rates, at least in terms of the federal funds rate, unless we start to see that inflation number come down. Now, is that going to happen? I don't really think so as long as the tariffs stay in place. Now, I know inflation hasn't been as bad as a lot of economists have been predicting. But if you start to read some of like the economic policy and technical stuff that's going on, there is a lot of indication that right now businesses are absorbing the increase in prices that are coming from tariffs, but have intentions to pass that on to consumers.

19:58And I do think if you look at the data for producer price indexes, service inflation, all this other stuff that I know not everyone else looks at, it seems likely to me that we're going to see some steady but modest, not crazy, but modest increases inflation over the next couple of months unless the tariffs get pulled back because of the court rulings or something like that. So I think that's going to sort of make sure that the Fed has a somewhat steady hand and doesn't get too aggressive in rate cuts, at least for the rest of 2025. Now, if the labor market really starts to get worse, I would not say that because if push came to shove, if the Fed really finds themselves between a rock and a hard place, and the labor market really starts to do bad, I think they're going to cut rates.

20:45They will favor the labor market over inflation. I think if they had to choose, they would say, favor people having jobs than avoiding really high inflation. Hopefully, it doesn't come to that, but that's sort of what I think. So just my take on this is maybe we get another 25 or 50 basis points by the end of the year max. I think it's going to take a little bit longer for things to come down. What happens next year is a whole nother question. We just really need more data about inflation, about jobs. And then come May, we'll see if President Trump replaces Jerome Powell with someone who is more willing to cut rates than Jerome Powell has demonstrated he is willing to do.

21:24So my best guess, federal funds rate continues to go down a little bit. I am not sure that mortgage rates are going to go down proportionally. I hope they do. I would like mortgage rates to come down a little bit. I think that would restore some much needed affordability to the housing market. It would help commercial real estate. But as long as there is risk of inflation, the bond market is probably not going to move that much. Unless the labor market really cracks and really we get into emergency situation, then we will probably see mortgage rates really start to come down. But But while we're in this era where inflation is still really just sticking around and is a little bit frustratingly stubborn, I think we're not going to see huge movement in mortgage rates for the rest of the year.

22:07That's what I've been saying all year, and I'm sticking with that. So that's my take on the macro situation. But how might this spill into the housing market and what does this mean for real estate investors? We're going to get to that right after this quick break. Do you ever notice how every passive investment somehow turns into a very active lifestyle? Active spreadsheets, active phone calls, active stress. Here's a better question. What if you could buy brand new construction homes, 10 % below market value, in the best markets across the country, without making real estate your second job?

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25:15Welcome back to On the Market. I'm Dave Meyer talking about the labor market. We've talked about all the data we've got so far. We've talked about what this means to the Fed and macroeconomics. Next, let's talk about what is going on in the housing market. And I think for this, we have to sort of break this down because we don't know what's going to happen with mortgage rates. Let's just say what happens if rates do start to come down? Well, I think it's good news. If rates start to come down, I think we're going to start to see more activity in the housing market. It's not some hot take. I'm sure everyone believes this.

25:51I don't necessarily believe this is going to lead to some crazy price appreciation. I know there are a lot of people out there saying, oh, when rates come down, home price depreciation is going to go wild. I think there's a chance that happens. I would peg that at like a 30 or 40 percent chance. But I think there's a chance that it just kind of picks up activity. Like we might just see more sellers in the market, more buyers in the market. So it's not really going to change demand all that much. but it will increase the number of transactions, which is also super important. Right now, we're at about 4 million transactions a year in the housing market, which sounds like a lot.

26:28It's not a lot. Normally, in a normal year, it's about 5.25 million. So we are well below a normal level in the housing market. And any decreases in mortgage rates, I think, could really help pick up that inventory. Not going to change your appreciation at all, But for anyone who works in this industry, real estate agents, loan officers, anyone like that, this is going to be welcome and needed news. Because if we want a healthy housing market, we need more transaction volume. And that could really help. The other couple of things that could happen for the housing market is, one, it's easier to lock in long-term debt at favorable terms, which is amazing.