This week has only four monthly economic reports scheduled for release, but two of them are considered to be extremely important to the markets. Also worth noting, earnings season is wrapping for the stock market and still could impact bond trading and mortgage pricing.
The Institute for Supply Management (ISM) will start this week's calendar when they release their manufacturing index for July at 10:00 AM ET tomorrow morning. 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. A reading above 50.0 means that more surveyed executives felt that business improved last month than those who said it had worsened. Analysts are expecting to see a 60.7 reading, nearly unchanged from June’s 60.6. Favorable news for bonds and mortgage rates would be a noticeably weaker reading because waning manufacturing strength makes broader economic growth less likely.
June's Factory Orders data will also help us measure manufacturing sector strength by tracking orders for both durable and non-durable goods during the month of June. Tuesday's release is similar to last week's Durable Goods Orders report that tracked orders for big-ticket items only. Since a significant portion of the data was released last week, this report likely will not have a big impact on the markets. Analysts are expecting to see a rise in new orders of approximately 0.9%. A much smaller than expected increase would be considered good news for bonds and mortgage pricing, but it will take a large variance from forecasts for this report to noticeably influence mortgage rates.
Wednesday brings us July's 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. This report tracks changes in private-sector jobs, using their payroll processing clients as a base. 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. Forecasts show 675,000 payrolls were added back to the economy. The bond and mortgage markets would prefer to see a smaller increase.
The most important data of the week will come early Friday morning when the almighty monthly Employment report is posted at 8:30 AM ET. 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 small increase or loss in jobs and a decline in earnings. Analysts are expecting to see 900,000 new payrolls last month, while the unemployment rate fell to 5.7% from June's 5.9%. Earnings are forecasted to have risen 0.3%. Good news for rates would be a smaller payroll number, higher unemployment rates and flat earnings.
Overall, Friday is the key day of the week for mortgage rates, although tomorrow could be pretty active also due to the ISM index. Tuesday is the best candidate for calmest day, unless something unexpected happens. Considering the importance of some of this week's data,, it would be prudent to keep a close eye on the markets if floating an interest rate and closing in the near future.