Producer Price Index (PPI)
January’s Producer Price Index came in hotter than expected, reinforcing the theme that inflation pressures are proving sticky.
Headline PPI rose 0.5%, above the 0.3% forecast. On a year-over-year basis, inflation edged down slightly from 3.0% to 2.9%, but markets were expecting a cooler 2.6% reading.
Core PPI — which strips out food and energy and is the more important number for long-term rate direction — rose 0.8%, far above the 0.3% estimate. Year-over-year Core inflation increased from 3.3% to 3.6%, while expectations were for it to remain unchanged.
Bottom line: wholesale inflation pressures are not easing as quickly as the Fed would like. This keeps upward pressure on bond yields and prevents mortgage rates from moving meaningfully lower.
Q2 Business Employment Dynamics (Reality vs. Headline Jobs Data)
The BLS Jobs Report continues to be one of the most market-moving releases each month. As we’ve been pointing out for some time, initial job growth numbers have been overstated and later revised lower — but those headline numbers have still been a key reason mortgage rates have stayed elevated.
A major factor behind the overstatement is the BLS “Birth-Death Model.” Because the Bureau of Labor Statistics only surveys roughly 670,000 businesses, it uses statistical modeling to estimate job creation from new businesses (births) and job losses from closures (deaths).
In April, May, and June of 2025, the Birth-Death model added 74,000 jobs to the reported totals.
Today’s updated data shows the actual figure was –321,000 jobs.
That’s a 395,000-job overstatement — from the Birth-Death model alone.
The weakness was broad-based:
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41 out of 50 states showed quarter-over-quarter declines
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69% of major industries declined QoQ
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85% of major industries performed below normal
This tells us the labor market is not as strong as headline data previously suggested — and that matters greatly for future Fed policy and rate direction.
Fed Commentary – Governor Miran
Fed Governor Miran indicated support for four 25 basis point cuts this year and suggested those cuts should come sooner rather than later.
If that sentiment gains traction inside the Fed, it would be supportive of lower rates. However, inflation data like we saw in PPI makes it harder for the Fed to move quickly.