This week has six economic reports set for release, including two that are considered to be highly important to the markets and mortgage rates. Some of this data will also influence the Fed’s monetary policy decision later this month, raising the potential of a great deal of volatility in the markets and mortgage rates.
November's manufacturing index from the Institute for Supply Management (ISM) is the first release of the week, coming at 10:00 AM ET Tuesday. This index measures manufacturer sentiment and can have a considerable impact on the financial markets and mortgage rates. Current forecasts call for a small increase in sentiment from October to November. October's reading was previously announced as 50.1. A weaker reading than the expected 50.4 would be good news for the bond market and mortgage rates, especially if it falls below 50.0. A reading below that threshold means that more surveyed business executives felt business worsened during the month than those who felt it had improved. A sub-50 reading is considered a recessionary sign. The lower the reading the better the news it is for bonds because waning sentiment indicates a slowing manufacturing sector and makes broader economic growth less likely.
Wednesday has three reports we will be watching. The first is the ADP Employment report before the markets open, 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 this week's calendar. Analysts are expecting to see 185,000 new private-sector payrolls for November.
The next piece of data that we need to be concerned with also comes early Wednesday morning when revised 3rd Quarter Productivity numbers are posted. This index is expected to show a small upward revision from the preliminary reading of worker productivity. Higher levels of productivity are thought to allow the economy to expand without inflationary pressures rising. This is good news for the bond market because economic growth itself isn't necessarily bad for the bond market. It's the conditions around an expanding economy, such as inflation, that hurt bond prices and mortgage rates. Current forecasts are calling for an annual rate of 2.2%, up from the previous estimate of 1.6%. The higher the reading, the better the news for the bond market. Although, this report generally does not have a noticeable impact on mortgage pricing, so it will take a wide variance to draw much attention.
Later Wednesday, the Federal Reserve will release their Beige Book at 2:00 PM ET. This report is named simply after the color of its cover and details economic conditions by Fed region. That information is relied upon heavily during the FOMC meetings when determining monetary policy, so its results can influence bond trading and mortgage rates if it shows any noticeable changes from the last update. More times than not though, this report will not influence the markets enough to cause intra-day changes to mortgage rates, but the potential to do so does exist.
October's Factory Orders report is Thursday’s only monthly report. This report is similar to the Durable Goods Orders report that was released last week, except this one includes manufacturing orders for both durable and non-durable goods. This data usually doesn't have a significant influence on bond trading. Analysts are expecting to see a 1.1% increase in new orders. The weaker the number, the better the news for bond prices and mortgage rates because it would signal softer than expected manufacturing sector activity.
The biggest news of the week comes early Friday morning when the Labor Department posts November's Employment figures. This is arguably the most important monthly report we see, so its impact on the markets and mortgage rates is often significant. It is comprised of many statistics and readings, but the most watched ones are the unemployment rate, the number of news jobs added or lost during the month and average hourly earnings. Current forecasts call for no change in the unemployment rate of 5.0% while 192,000 new jobs were added to the economy. The income reading is forecasted to show an increase of 0.2%. An ideal scenario for mortgage shoppers would be a higher unemployment rate, a much smaller increase in payrolls (or a decline) and no change in the earnings reading. If we are fortunate enough to hit the trifecta with all three, we should see bond prices rise and mortgage rates move much lower Friday. However, stronger than expected readings would likely fuel a bond sell-off that would lead to higher mortgage rates.
Also worth noting is that extra attention will be given to this month’s Employment report because it is the last one before the Fed’s FOMC meeting December 16th. It is at that meeting that many analysts and market participants expect the Fed to make their first increase to key short-term interest rates since 2006. If this report meets or exceeds expectations, it is highly likely that the Fed will make that move this month. On the other hand, weaker than expected numbers throws into question whether they will make that rate hike now or wait for the first 2016 meeting to do so. Any possibility of a delay in the rate hike should be taken as good news in the bond market.
There also are several Fed member speaking engagements that could affect the financial and mortgage markets this week. Fed Chair Janet Yellen speaks Wednesday and Thursday. It is Thursday morning’s appearance before a Joint Congressional Economic Committee that is most likely to cause volatility in the markets. Market participants will be watching her words very closely.
Overall, look for Friday to be the most active day of the week but we could see noticeable movement in rates Tuesday also. The best candidate for calmest is Monday with nothing in terms of relevant economic data set for release. With so much on tap this week, there is plenty of opportunity to see large swings in the major market indexes and mortgage rates multiple days.