Market Commentary for the Week of November 3rd

This week brings us the release of five economic reports for the markets to digest with two of those reports being much more important than the others. The first release of the week will come from the Institute for Supply Management (ISM), who will post their manufacturing index at 10:00 AM ET Monday. This index measures manufacturer sentiment, which is important because it gives us an indication of manufacturing sector strength. It is considered to be one of the more important reports we see each month, partly because it is the first report every month that tracks the preceding month’s activity. Monday’s release is expected to show a reading of 56.2, indicating that manufacturer sentiment slipped from September’s level. This means fewer surveyed manufacturing executives felt business improved during the month than in September, hinting at slower manufacturing sector growth. A smaller than expected reading would be good news for bonds and likely lead to lower mortgage rates Monday.

The second report of the week will be September’s Factory Orders data at 10:00 AM ET Tuesday. This report is similar to last week’s Durable Goods Orders release except it includes orders for both durable and non-durable goods. It is expected to show a 0.5% decline in new orders from August’s level. A larger decline would be good news for the bond market and mortgage rates while an unexpected rise would be bad news and could push rates slightly higher Tuesday morning since it would indicate economic strength. It is worth noting though, that this report is not considered to be highly important to mortgage rates.

Wednesday’s only report worth watching is the ADP Employment report before the markets open. It has the potential to cause some 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 seen reaction to the report recently, we should be watching it. Analysts are expecting it to show that 220,000 new payrolls were added. The lower the number of jobs, the better the news it is for mortgage rates.

The 3rd Quarter Productivity reading will be released Thursday at 8:30 AM ET. It is expected to show a 1.4% increase in worker productivity during the third quarter. A larger increase would be good news for the bond market because higher levels of employee productivity allow the economy to expand without inflationary pressures being a concern. This is a relatively low importance report, meaning it will take a significant variance from forecasts for it to directly affect mortgage rates.

The last report of the week is the most important. Friday brings us the release of arguably the most important monthly piece of economic news- the Employment report. The Labor Department will post October’s employment stats early Friday morning. The report is comprised of many statistics and readings, but the most important ones are the unemployment rate, the number of new jobs added or lost during the month and average hourly earnings. Current forecasts call for no change in the unemployment rate, holding at 5.9%, an increase in payrolls of approximately 235,000 and a 0.2% increase in average earnings. Weaker than expected readings should renew concerns about the labor market and rally bonds enough to improve mortgage rates, especially if the stock markets react poorly to the news.

Overall, the single most important day is Friday but Monday is likely to be pretty active also. Tuesday will probably be the calmest day unless something unexpected happens. We have relevant data set for release each day of the week and stocks have been volatile recently, so this leads me to believe that we will see another active week for mortgage rates. Accordingly, please maintain contact with your mortgage professional if still floating a rate and closing in the near future.