Mortgage Market Update
This week brings us the release of six economic reports that are likely to influence mortgage rates. Unlike most weeks, this week’s mortgage-relevant activities will take place the first few days rather than latter days.
January's Durable Goods Orders data will give us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. Products such as electronics, refrigerators, airplanes and autos are examples of these big-ticket items. Analysts are expecting to see a 1.8% increase in new orders, hinting at manufacturing sector growth. It is worth noting that this data is known to be quite volatile from month to month, so large swings are common.
The first of two revisions to the 4th Quarter GDP reading is scheduled for release at 8:30 AM ET Tuesday morning. The GDP is considered the benchmark reading of economic growth or contraction because it is the total sum of all goods and services produced in the U.S. Analysts' forecasts currently call for an annual rate of growth of 2.1%, up from the initial estimate of 1.9% that was posted last month. It will be interesting to see where this figure falls and what its impact on the markets will be. Generally speaking, higher levels of activity are bad news for the bond market, while a larger downward revision would be good news for bonds and could lead to improvements in mortgage pricing Tuesday.
February's Consumer Confidence Index (CCI) will be posted at 10:00 AM ET Tuesday morning. This Conference Board index measures consumer confidence in their personal financial situations, giving us a measurement of consumer willingness to spend. If consumers are feeling good about their own financial and employment situations, they are more apt to make large purchases in the near future. Since consumer spending makes up over two-thirds of the economy, related data is considered important in terms of gauging economic growth. It is expected to show a decline in confidence from the 111.8 reading in January to 111.5 this month. A lower reading would be considered good news for bonds and mortgage rates since it would indicate consumers are less likely to make a large purchase in the near future than many had thought.
January's Personal Income and Outlays data is scheduled for release at 8:30 AM ET Wednesday morning. This data gives us an indication of consumer ability to spend and current spending habits. Current forecasts call for an increase in income of 0.4% while spending is expected to rise 0.3%. Lower levels of income means consumers have less money to spend. And weaker levels of consumer spending helps limit overall economic growth, making long-term securities such as mortgage-related bonds more attractive to investors. Therefore, the weaker the readings, the better the news it would be for mortgage rates.
The Institute for Supply Management (ISM) will release their manufacturing index for February late Wednesday morning. This index measures manufacturer sentiment and can have a pretty heavy impact on the financial and mortgage markets if it varies from forecasts. It is expected to show a slight change from January's 56.0 (+0.1). A reading above 50.0 means more surveyed manufacturers felt business improved during the month than those who felt it had worsened. A sub-50 reading is considered a recessionary sign. If we see a weaker than expected reading, the bond market could rally. But, a much higher than forecasted reading could lead to heavy selling in bonds, causing mortgage rates to rise Wednesday morning. One of the reasons this data is considered so important is the fact that it is usually the first monthly report posted that covers the preceding month. It is traditionally posted the first business day of the month, allowing for a current snapshot of conditions in the manufacturing sector.
The Fed Beige Book is the next report scheduled for release and it will be posted Wednesday afternoon. This report details economic activity throughout the country by Federal Reserve region. The Fed relies heavily on this data during their FOMC meetings, so look for a potential reaction during afternoon trading Wednesday. It probably will not cause a major sell off in the stock or bond markets, but it is still worth watching.
This week also has a fairly large number of Fed member speaking engagements. There are speakers scheduled each day, including Fed Chair Janet Yellen on Friday. We will be watching these events for any surprises, as will market participants. These type of events are common and can be non-factors in the markets or have a significant influence if they include something new regarding monetary policy moves. There is no way to predict on important they are, but some topics are much less likely to cause volatility than others.
Overall, Wednesday is the best candidate for most important day of the week with two important reports scheduled in the morning and the afternoon release of the Fed Beige Book that can affect the Fed’s voting on interest rate changes. The calmest day will likely be Thursday. Due to the importance of some of this week’s data, it is strongly recommended that you maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.