This week brings us the release of only three monthly reports that are relevant to the bond market and mortgage rates, but one of them is considered to be extremely important. In addition to those reports, we also will get the minutes from the last FOMC meeting that has the potential to influence the bond market and quite possibly mortgage rates.
The Commerce Department will post November's Factory Orders data late Tuesday morning. This data gives us a fairly important measurement of manufacturing sector strength. It is similar to the Durable Goods Orders release that was posted just before Christmas, except this report includes orders for both durable and non-durable goods. Durable goods are items that are expected to last three or more years such as appliances, electronics and airplanes. Examples of non-durable goods are food and clothing. Analysts are expecting to see a decline of 0.4% in new orders. This report generally does not have a huge impact on the bond market or mortgage rates, but it can influence bond trading enough to create a minor change in rates if it shows a sizable variance from forecasts. The larger the decline, the better the news it is for mortgage pricing.
Next up is the ADP Employment report before the markets open Wednesday morning, which 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 of the company'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 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 our calendar. Forecasts are calling for an increase of 230,000 new payrolls. Good news for mortgage rates would be a much smaller increase in payrolls.
Also Wednesday is the release of the minutes from the last FOMC meeting. They will give market participants insight to the Fed's thinking and concerns regarding the economy, inflation and monetary policy. It is one of those pieces of information that may cause a great deal of volatility in the markets or be a non-factor, depending on what the minutes show. They will be released at 2:00 PM ET, so they won't affect the markets or mortgage rates until afternoon hours. I don't suspect this particular set of minutes will cause too much concern or excitement because the last FOMC meeting was followed by revised Fed forecasts and a press conference by Chairperson Yellen. Still, analysts will be looking for any tidbits that could help predict when the first short-term interest rate increase will be made.
The big news of the week will come at 8:30 AM Friday when the Labor Department will post December's employment figures. The Employment report is arguably the single most important monthly release we see. It gives us the national unemployment rate, the number of jobs added or lost during the month and average hourly earnings, which is a key measure of wage inflation. Rising unemployment, a decline in payrolls and flat earnings would be ideal news for the bond market. Current forecasts call for a 0.1% decline November's unemployment rate of 5.8%, 235,000 new jobs added to the economy and an increase in earnings of 0.2%. If we see weaker than expected results, the bond market should rally and stocks should fall, improving mortgage rates noticeably Friday. However, stronger than expected readings will likely raise optimism about the economy, pushing stocks and mortgage rates sharply higher.
Overall, Friday is the key day of the week with the almighty Employment report being posted, but Wednesday also has a chance to be pretty active. The least active day will likely end up being Thursday.