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  • Writer's pictureJenny Phung

Mortgage Market Update

This week brings us the release of five monthly and quarterly economic reports that have the potential to influence mortgage rates. Tomorrow is the only day of the week without at least one report scheduled, but the calendar starts Tuesday and picks up importance quickly.

The Conference Board will start this week’s activities with their Consumer Confidence Index (CCI) for August at 10:00 AM ET Tuesday morning. This index measures consumer sentiment about their own financial and employment situations, giving us an idea about consumer willingness to spend. If consumers are more confident in their finances, they are more apt to spend. Since consumer spending makes up over two-thirds of the U.S. economy, this data is watched closely. A noticeable decline in confidence would indicate that surveyed consumers probably will not make a large purchase in the immediate future. That would be a sign of economic weakness and should drive bond prices higher, leading to lower mortgage rates Tuesday. It is expected to show a reading of 123.0 which would be a decline from July's 129.1. The lower the reading, the better the news for bonds and mortgage pricing.

Next up is August's ADP Employment report before the markets open Wednesday. This release has the potential to cause some movement in the markets if it shows much stronger or weaker numbers. It tracks changes in private-sector jobs, using the company's payroll processing clients as a base. I don't have much faith in the data to accurately reflect the status of the employment sector, but the markets do react to it. It is expected to show 550,000 new private-sector jobs were added during the month. A higher than expected number would be negative news for mortgage rates while a much smaller increase would be favorable.

One of the week’s two major reports is Wednesday’s Institute for Supply Management’s (ISM) manufacturing index for August. This very important index measures manufacturer sentiment and is expected to have slipped a little from July's 59.5. A reading above 50 is considered a sign of economic growth because it means that more surveyed manufacturers felt business improved during the month than those who felt it had worsened. A lower reading than 58.8 would likely fuel selling in the stock markets and lead to an improvement in mortgage rates Wednesday.

Besides the weekly unemployment update that comes each Thursday morning, this week also has two additional reports to watch that day. First will be revised 2nd Quarter Productivity numbers at 8:30 AM ET that measure employee productivity in the workplace. Strong levels of productivity allow the economy to expand without inflation concerns. It is expected to show a 2.4% increase in productivity, up slightly from the initial estimate of 2.3%. Good news for the bond market and mortgage rates would be a solid upward revision in productivity, but this report doesn't usually cause much movement in rates.

July's Factory Orders data is also set for Thursday, but at 10:00 AM ET, giving us a measure of manufacturing sector strength. It is similar to the Durable Goods Orders released last week but includes orders for both durable and non-durable goods. It is expected to show a 0.4% increase in new orders. A smaller than expected increase would be favorable for bonds, but this data likely won't cause much movement in rates unless its results vary greatly from forecasts since the big-ticket products portion of the report was released already.

That takes us to Friday and the almighty monthly Employment report at 8:30 AM ET. The Labor Department will post the unemployment rate, number of new jobs added or lost and average hourly earnings for last month. The ideal scenario for the bond market and mortgage rates is rising unemployment, a drop in the number of new payrolls and earnings to fall slightly. Analysts are expecting to see that the unemployment rate slipped 0.2% from July's 5.4% and that 745,000 jobs were added during the month. The average earnings reading is forecasted to have risen 0.3% from July. Weaker than expected readings would signal the employment sector is in worse shape than thought and would be very good news for bonds and mortgage rates. However, if we get stronger than expected numbers, mortgage rates could move higher Friday.

Overall, Friday is the most important day of the week due to the importance of the Employment report. Wednesday may also be active though since the ISM Index is considered to be a major release too. The calmest day for rates may be tomorrow or Tuesday. Even though we don't have a large number of events scheduled this week, we do have some extremely important data that is likely to make this an active week for rates. Therefore, please proceed cautiously if still floating an interest rate and closing in the near future.

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