This week brings us the release of six reports that may influence mortgage rates, with two of them considered to be highly important. Adding to the significance of these reports is the fact that they will be the last versions before the FOMC meeting next month that some believe may bring Fed's first rate hike since the financial crisis and recession.
The first release of the week will come from the Institute for Supply Management (ISM), who will post their manufacturing index for August at 10:00 AM ET Tuesday. This index measures manufacturer sentiment and is expected to show a reading of 52.6, which would be a slight decline from July's reading of 52.7. A reading below 50 is considered a recessionary sign because it means that more surveyed manufacturers felt business worsened during the month than those who felt it had improved. A larger decline in the index would likely lead to an improvement in mortgage rates Tuesday as it would hint at manufacturing sector weakness.
Wednesday has three monthly or quarterly releases, but none of them is considered to be highly important. The first 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. I don’t have much faith in the data but the markets do react to it, so we watch it. It is expected to show 201,000 new private-sector jobs were added last month.
The second is the revised 2nd Quarter Productivity numbers, which measures employee productivity in the workplace. Strong levels of productivity allow the economy to expand without inflation concerns. Forecasts are currently calling for a 1.4% upward revision, meaning productivity was better than previously thought from April through June. This would technically be good news for the bond market and mortgage rates, but this data is considered to be only moderately important to the markets. Therefore, it will take a sizable variance from 2.7% for this report to affect mortgage rates. Favorable news would be a sizable increase in productivity.
The third report of the day Wednesday will come from the Commerce Department, who will post July's Factory Orders data at 10:00 AM ET. This manufacturing sector report is similar to last week's Durable Goods Orders release, but also includes orders for non-durable goods. It can impact the bond market enough to change mortgage rates if it varies from forecasts by a wide margin. Analysts are forecasting an increase of 0.9% in new orders, meaning manufacturing activity strengthened last month. This would be bad news for the bond market and mortgage pricing, but I believe we will need to see a large decline for this report to create a noticeable improvement in rates.
In addition to those reports, the Federal Reserve will release its Beige Book report at 2:00 PM ET Wednesday. This report details current economic conditions in the U.S. by Federal Reserve regions. It is believed to be a key source of data when the Fed meets for their FOMC meetings and is usually released approximately two weeks prior to each meeting. If it reveals any significant surprises or changes from the previous release, we may see movement in the markets and mortgage pricing as analysts adjust their theories on the Fed’s likelihood of raising short-term interest rates when they meet September 16 and 17.
Thursday has nothing of importance set for release. However, the biggest news of the week and arguably the most important that we see each month comes early Friday morning. The Labor Department will post the unemployment rate, number of new jobs added or lost and average hourly earnings for August at 8:30 AM ET Friday. The ideal scenario for the bond market and mortgage rates is rising unemployment, a drop in payrolls and earnings to fall slightly. Analysts are expecting to see that the unemployment rate slipped 0.1% to 5.2% and that 217,000 jobs were added during the month. Weaker than expected readings would signal softer employment sector growth than predicted and would be very good news for bonds and mortgage rates Friday. However, if we get noticeably stronger than expected numbers, mortgage rates will probably spike higher.
Overall, we will probably see noticeable movement in rates several days this week. The most active day will likely be Friday due to the significance of the monthly Employment report, but Tuesday’s ISM report is also a key report for mortgage rates. Wednesday has a full day of releases, so we need to be careful with it too.