This week brings us the release of eight economic reports
that may impact mortgage rates, some of which are considered to be highly
influential. In addition to the economic data, there is also another FOMC
meeting that certainly has the potential to cause chaos in the markets and a
couple of Treasury auctions Tuesday and Wednesday. There is important data
scheduled every day except Monday, so there is a strong likelihood of seeing
noticeable mortgage rate movement and possibly multiple intra-day revisions this
week.
The first economic data of the week comes late Tuesday morning when the
Conference Board posts their Consumer Confidence Index (CCI) for July at 10:00
AM ET. This index measures consumer sentiment, giving us an idea of consumer
willingness to spend. If consumers are more confident in their own financial and
employment situations, they are apt to make large purchases in the near future.
This is important because consumer spending makes up such a large portion of our
economy. If the CCI reading is weaker than expected, meaning that consumers were
less confident than thought and likely will delay making a large personal
purchase, we may see bond prices rise and mortgage rates drop Tuesday morning.
Current forecasts are calling for a reading of 85.6, which would be a higher
reading than June’s 85.2 and indicate consumers are a little more comfortable
with their finances than they were last month.
Wednesday has two pieces of data that are likely to influence rates. The
first is the ADP Employment report before the markets open, which has the
potential to cause some movement in the markets if it shows much stronger or
weaker numbers. This report tracks changes in private-sector jobs in the
company’s clients that use them for payroll processing. While it does draw
attention, it is my opinion that it is overrated and is not a true reflection of
the broader employment picture. It also is not very accurate in predicting
results of the monthly government report that follows a couple days later.
Still, because we sometimes see a noticeable reaction to the report, it is on
this week’s calendar.
The first of this week’s three extremely important report is the preliminary
reading of the 2nd Quarter Gross Domestic Product (GDP) at 8:30 AM ET Wednesday.
This index is considered to be the benchmark indicator of economic growth or
weakness. It is the total of all goods and services that are produced in the
U.S. and usually has a great deal of influence on the financial markets. This
reading is arguably the single most important report we get regularly. Current
forecasts are estimating that the economy grew at a 3.1% annual rate during the
second quarter, rebounding significantly from the first quarter’s 2.9% decline.
A faster rate of growth should hurt bond prices, leading to higher mortgage
rates Wednesday. But a smaller than expected reading will likely fuel a bond
market rally and push mortgage pricing lower since it would indicate the economy
was not as strong as many had thought.
Also Wednesday is the adjournment of the fifth FOMC meeting of the year that
begins Tuesday. This is not a meeting that will be followed by a press
conference with Fed Chair Yellen nor is it expected to yield a change to key
interest rates. Theoretically, we would like to hear something in the
post-meeting statement that indicates the Fed is not going to raise rates until
late next year or 2016. There is a decent chance that this meeting and statement
will yield no surprise and have little impact on the markets. However, it is
such a key event that draws so much focus from analysts and market participants
that just a slight variation in the verbiage can cause a noticeable reaction in
the financial and mortgage markets. The meeting will adjourn at 2:00 PM ET, so
any reaction will come during mid-afternoon hours.
Thursday’s only data is the 2nd Quarter Employment Cost Index (ECI) that
tracks employer costs for wages and benefits. This gives us a measurement of
wage-inflation. If it shows a large increase, we may see wage inflation concerns
rise as employers will need to pass those increases into the pricing of their
products and services. That would cause the bond market to fall and mortgage
rates to rise. A smaller than expected increase would be good news for the bond
market and mortgage pricing. Current forecasts are showing a rise of 0.4%.
That takes us to Friday, where we have four economic reports, including two
major releases. The first is the most important report we see each month when
the Labor Department posts their monthly Employment report for July. This report
gives us the U.S. unemployment rate, number of jobs added or lost during the
month and average hourly earnings for July. The best scenario for the bond
market is rising unemployment, a sizable loss of jobs and little change in
earnings. While many believe the preliminary reading to the GDP is the single
most important report in general, it is posted quarterly rather than monthly
like the Employment report. Friday’s report is expected to show that the
unemployment rate remained at 6.1% last month while approximately 220,000 jobs
were added to the economy. Due to the importance of these readings, we will most
likely see quite a bit of volatility in the markets and mortgage pricing Friday
morning following their 8:30 AM ET posting.
June’s Personal Income and Outlays data will also be posted early Friday
morning. This report helps us measure consumer ability to spend and current
spending habits. If it shows sizable increases, bond selling could lead to
higher mortgage rates. Current forecasts are calling for an increase of 0.4% in
income and a 0.4% rise in spending. A larger than expected increase in income
means consumers have more funds to spend, which is not favorable to bonds
because consumer spending makes up over two-thirds of the U.S. economy. We would
like to see declines in spending and income that would indicate economic
weakness, but the smaller the increase in each, the better the news for mortgage
rates. It is worth noting though that the Employment report will draw more
attention than this data will be.
Next is July’s University of Michigan Index of Consumer Sentiment just before
10:00 AM ET that will help us measure consumer optimism about their own
financial situations. This data is considered relevant because rising consumer
confidence usually translates into higher levels of spending that adds fuel to
the economic recovery and is looked at as bad news for bonds. Friday’s release
is an update to the preliminary reading we saw two weeks ago, so unless we see a
drastic revision to the preliminary estimate of 81.3, I think the markets will
probably shrug off this news.
And finally, the Institute for Supply Management’s (ISM) manufacturing index
for July will be posted at 10:00 AM ET Friday. This index measures manufacturer
sentiment by surveying trade executives about business conditions during the
month and is considered to be of high importance to the markets. One reason it
draws so much attention is that this report is usually the first released each
month that tracks the preceding month’s activity. A reading above 50.0 means
more surveyed executives felt that business improved this month than those who
said it had worsened. June’s reading came in at 55.3, above that important
threshold. Friday’s release is expected to show a reading of 55.9, meaning
surveyed executives felt business conditions improved from June to July.
Ideally, we would like to see a decline as it would point towards a softening
manufacturing sector, especially is it gets close to 50.0.
Overall, I am expecting to see an extremely active week for financial markets
and mortgage rates. I think that the most important day is either going to be
Wednesday due to the GDP release and FOMC adjournment or Friday with July’s
employment numbers and ISM index being posted. The least important day is Monday
since nothing of importance is scheduled. I suspect we will see plenty of
movement in not only mortgage rates, but also the financial markets in general
this week. If still floating an interest rate, I would definitely maintain
constant contact with my mortgage professional as it is going to be an
interesting five days.
Welcome to almost the end of the week, and the last day
of July. In fact, the year is now half over. It’s time to review your
resolutions and see how you’re doing and what you still want to do over the next
six months. Hopefully one of them was working on improving your credit. And if
you’re looking to buy
a home, now is definitely the time to start the process of getting
pre-approved.
