Fed rate cuts spark US housing revival
US housing sentiment surges after Fed rate cut, UK labor market loosens, and Australia’s unemployment spikes. Global data signals mixed momentum as inflation and growth diverge across regions.
Weekly highlights
Biggest jump in 21 months
Big jump, but very volatile
Huge reversal after prior gain
Higher than expected
Lower than expected
Above expectations
Might continue rising
More people looking for jobs
Below expectations
US: Housing stirs amid resumption of rate cuts
Amid the ongoing government shutdown, the flow of US macroeconomic data has been limited to a few private data releases. Of these, perhaps the most hopeful this week was the update on homebuilder sentiment from the National Association of Homebuilders (NAHB). The 5-point jump in the headline was the largest single-month increase since January 2024 and highlights the sector’s sensitivity to the resumption of Fed rate cuts. Specifically, the “future sales” component surged nine points, also the most since January 2024.
Given our (and market’s) expectation for two more 25-bp cuts this year and more in 2026, it is not surprising to see sentiment around future home sales improve. While 30-year mortgage rates remain elevated at around 6.25%, they should ease further in coming months, improving affordability. The other side of this, of course, is that current sales activity is so depressed that it would not take much to bring about an improvement. Indeed, present sales sentiment is hovering at levels seen only briefly during COVID.
UK: Stagnant job market
This week's labor market report shows a stagnant job market. The ILO unemployment rate rose to 4.8% in the three months to August, despite forecasts of a drop to 4.6%. While LFS survey data varies, its larger sample and other surveys also confirm rising unemployment.
As the Bank of England considers slowing interest rate reductions, UK private sector wage growth is decreasing, reducing pressure on the Bank. Wage growth has dropped to 4.4% annually from 6% and there are signs that it may fall below 4% by November.
Most MPC members maintained their positions this week. However, Governor Bailey showed a more dovish approach in response to recent labor market data while noting ongoing high inflation. Meanwhile, Chief Economist Huw Pill advocates for further rate cuts but at a slower pace than the MPC's recent quarterly actions.
A rate cut in November now appears unlikely, but December remains possible if wage growth declines further and services inflation undershoots expectations. On balance, we now view February as the most likely timing, permitting the incorporation of additional economic data.
Australia: Upside risks to unemployment rate
The unemployment rate surged to 4.5% in September, up from the originally reported 4.2% in August (subsequently revised to 4.3%). This was in line with our expectations (see here and here) but a big negative surprise relative to consensus and the Reserve Bank of Australia (RBA) whose Statement of Monetary Policy forecasted the rate to remain at 4.3% through December 2027! Regular readers would remember our August commentary on the underappreciation of the risks in the labor market.
The deterioration was a combination of softer hiring, higher participation, and also a pickup in the incoming rotation group’s rate to 4.4% from last month’s 3.3%. Although the unemployment rates of the samples change every month, we believe the higher incoming group’s rate also indicates that the labor market has changed from last year. Overall employment growth also underwhelmed expectations at 14.9k.
There was also a negative revision to last month’s data; the unemployment rate was revised up a tenth to 4.3%, while employment is revised to show a loss of 11.9k jobs, instead of the initially reported 5.1k decline.
We view the November RBA meeting to be a close call, as the Q3 CPI data due on October 29 may show a pickup, with our own Australia Inflation Tracker showing a modest upside risk. Nonetheless, our forecast remains unchanged as we expect the RBA to cut at least once in the next two meetings.
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There's more to the Weekly Economic Perspectives in PDF. Take a look at our Week in Review table – a short and sweet summary of the major data releases and the key developments to look out for next week.