Market Commentary

Updated on February 5, 2025 10:11:39 AM EST

January's ADP Employment report was released early this morning, estimating 183,000 new private-sector jobs were added to the economy last month. This was higher than the 150,000 that was expected and signals strength in part of the employment sector. Fortunately, traders are more interested in this morning's second release and tomorrow's monthly Employment report.

Also posted this morning was the Institute for Supply Management's (ISM) non-manufacturing index. January's reading was announced at 52.8, down from December's revised 54.0. This means fewer surveyed business executives from the service sector felt business improved during the month than did in December. Analysts were expecting to see an increase that would have indicated strength in the sector, not a decline. The several point spread between the expected increase and January's actual reading is heavily contributing to this morning's bond gains.

There are two moderately important economic reports set for release tomorrow before we get to Friday's big news. First will be last week's unemployment figures at 8:30 AM ET. They are expected to show 214,000 new claims for jobless benefits were made, up from the previous week's 207,000. A larger number would be good news for bonds and mortgage pricing because rising claims are a sign of weakness in the employment sector and bonds are more appealing to investors during weaker economic conditions.

4th quarter Employee Productivity and Costs data will also be released early tomorrow morning. It can cause a change in the bond market but should have a minimal impact on mortgage pricing. Forecasts are predicting a 1.6% increase in productivity, slower than the 3rd quarter's 2.2% rate. Higher levels of worker productivity are good news for the bond market because it allows the economy to expand without fueling inflation. In other words, the larger the increase in productivity, the better the news for rates. However, the markets are going to be much more interested in Friday's Employment report than this data. Accordingly, it will take a large variance from forecasts for it to have a noticeable impact on tomorrow's mortgage rates.