Market Commentary for the Week of September 29th

This week brings us the release of five monthly economic reports that are likely to influence mortgage rates with two of them being extremely important to the financial and mortgage markets. Those upper tier releases can cause significant movement in mortgage rates if they show surprises. Accordingly, it appears we will have a couple of days with noticeable changes in rates this week.

The first report is August’s Personal Income and Outlays early Monday morning. It gives us an indication of consumer ability to spend and current spending habits. This is relevant to the markets because consumer spending makes up over two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. That is negative news for mortgage rates because bonds tend to thrive in weaker economic conditions. It is expected to show an increase of 0.3% in income and a 0.4% increase in spending. If we see weaker than expected readings, the bond market should react positively, leading to lower rates Monday.

September’s Consumer Confidence Index (CCI) is next, late Tuesday morning. This Conference Board index will be posted at 10:00 AM ET and gives us a measurement of consumer willingness to spend. It is expected to show a slight decline in confidence from last month’s reading, indicating that consumers were a little less optimistic about their own financial situations than last month. This means they are less likely to make a large purchase in the near future. That is favorable news for the bond market and mortgage rates because consumer spending fuels economic growth. Analysts are calling for a reading of approximately 92.0, down from August’s 92.4 reading. The smaller the reading, the better the news for the bond market and mortgage rates.

Wednesday has two reports scheduled that we need to watch. The ADP Employment report for September is first, set for release before the markets open. It has the potential to cause movement in the markets if it shows much stronger or weaker numbers than expected. This report tracks changes in private-sector jobs of ADP’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 accurate in predicting results of the monthly government report that follows a couple days later. Still, because we have recently seen reaction to the report, we will be watching it. Analysts are expecting it to show that 202,000 new payrolls were added. The lower the number of jobs, the better the news it is for mortgage rates.

The Institute for Supply Management (ISM) will post their manufacturing index for September at 10:00 AM ET Wednesday. This index measures manufacturer sentiment and it can be heavily influential on the markets and mortgage rates. Analysts are expecting to see a decline from August’s 59.0 reading, meaning surveyed manufacturers felt business conditions were a little weaker in September than they were in August. This data is important not only because it measures manufacturer sentiment, but it is also very recent data. Some economic releases track data that are 30-60 days old. But the ISM index is only a few weeks old and usually the first report we see each month. If it reveals a reading below 58.5, meaning sentiment fell short of expectations, we should see the bond market move higher and mortgage rates fall Wednesday.

Thursday’s monthly economic data will come from the Commerce Department, who will post August’s Factory Orders data at 10:00 AM ET. This manufacturing sector report is similar to last week’s Durable Goods Orders release, but also includes orders for non-durable goods such as food and clothing. It can impact the bond market enough to change mortgage rates if it varies from forecasts by a wide margin. Analysts are forecasting a decline of 9.3% in new orders, meaning manufacturing activity slowed in August. This would be good news for the bond market and mortgage pricing. However, I believe we will need to see a much larger decline for this report to cause a noticeable improvement in rates, partly because the data is skewed from a large spike in airplane orders during July.

The biggest news of the week will come from the Labor Department, who will post September’s Employment report early Friday morning. This report will reveal the U.S. unemployment rate, number of new payrolls added or lost during the month and average hourly earnings. These are considered to be very important readings of the employment sector and can have a huge impact on the financial markets. The ideal scenario for the bond market is rising unemployment, falling payrolls and a drop in earnings.

If this report gives us weaker than expected readings, bond prices should move higher and we should see lower mortgage rates Friday. However, stronger than forecasted readings could cause a sizable spike in mortgage pricing and start another upward trend in rates. Analysts are expecting to see the unemployment rate remain at 6.1%, an increase of 210,000 new jobs from August’s level and a 0.2% increase in earnings.

Overall, I suspect we will see a fair amount of volatility in the markets and mortgage rates this week, but the busiest days will probably be the latter part of the week. Labeling Wednesday and Friday as the most important days is easy due to the significance of the economic reports scheduled those days. The calmest day for mortgage rates will likely be Thursday but major moves in the stock markets could lead to movement in rates any day. With such important data and a relatively full calendar, it would be prudent to maintain fairly constant contact with your mortgage professional this week if still floating an interest rate.