Some Volatility Before Tomorrow's Jobs Report

What Is Happening Today

Mortgage rates are under modest pressure this morning as markets react to a combination of political headlines and mixed labor data. Stocks and mortgage bonds are both lower after comments from President Trump regarding a proposed $1.5 trillion military budget increase, which would require additional government borrowing. The prospect of higher debt issuance has pushed bond prices lower, even though the proposal would not take effect until 2027.

At the same time, today’s economic data continues to paint a picture of a cooling labor market beneath the surface. Productivity improved sharply while unit labor costs fell, which is positive for inflation. Jobless claims and job cut data also suggest a low firing, low hiring environment. With the monthly jobs report tomorrow, markets are cautious and rates remain sensitive to incoming data.

Government Spending Headlines

President Trump floated a $1.5 trillion military budget proposal
Funding would require increased government debt issuance
Markets reacted immediately despite the proposal targeting 2027
Additional comments about limiting institutional home purchases appear unlikely to materially impact housing demand

While the proposal is far from finalized, the market reaction highlights how sensitive bonds are to potential increases in government borrowing.

Productivity and Labor Cost Trends

Q3 productivity rose 4.9%, well above the 3% estimate
Q2 productivity was revised higher from 3.3% to 4.1%
Unit labor costs fell 1.9%, much better than the expected increase
Lower labor costs are generally deflationary and supportive for rates

Stronger productivity paired with falling labor costs supports the case for easing inflation pressures over time.

Jobless Claims Update

Initial jobless claims rose to 208,000
Holiday timing likely distorted the data
Continuing claims increased to 1.91 million
Data still points to a low firing, low hiring environment

Claims data remains noisy around the holidays, but the broader trend suggests a labor market that continues to cool gradually.

Job Cut and Hiring Signals

December job cuts totaled 35,553, the lowest level in 17 months
Hiring plans rose to 10,496, the strongest December in three years
Year to date job cuts remain elevated
Hiring plans for the year are the lowest in 15 years

Despite a seasonally strong December, the broader hiring picture remains weak and does not yet signal a meaningful rebound.

Labor Market Expectations Ahead

Markets are watching closely for the upcoming jobs report
Expectations are for roughly 60,000 jobs added
Unemployment is expected to edge down slightly to 4.5%
A flat or higher unemployment reading would likely help rates

Recent labor data suggests downside risk to job growth, which could support lower rates if confirmed.

What to Watch Next

The upcoming jobs report will be the primary market driver
Labor data remains the key variable for rate direction
Bond markets are off recent lows but remain range bound
Volatility is likely to increase once jobs data is released

Markets are waiting for clearer confirmation before making a meaningful move.

Bottom Line

Mortgage rates moved modestly higher today as markets reacted to government spending headlines, even though the underlying economic data continues to show signs of a cooling labor market. Strong productivity gains and falling labor costs are positive for inflation, while jobless claims and hiring data suggest growth is slowing beneath the surface.

With the monthly jobs report ahead, markets are cautious and sensitive to incoming labor data. If job growth comes in weaker than expected, rates could find room to improve. Until then, mortgage rates remain range bound as investors wait for confirmation on the direction of the economy.