This week brings us the release of six pieces of monthly and quarterly economic data that are considered relevant to mortgage rates. It is a holiday-shortened week with the financial markets closing early Thursday and remaining closed Friday in observance of Christmas. None of the week's data is considered key, but some of it does carry enough importance to affect mortgage pricing. None of the week’s reports come tomorrow.
The first of this week's releases is the final revision to the 3rd Quarter Gross Domestic Product (GDP) early Tuesday morning. I don't think this data will have an impact on mortgage rates unless it varies greatly from its expected reading. Last month's first revision showed that the economy expanded at a 2.1% annual pace during the quarter and this month's final revision is expected to show a 2.0% growth rate. A revision higher than that would be considered bad news for bonds. But since this data is quite aged at this point and 4th quarter numbers will be posted next month, I am not expecting this release to affect rates Tuesday.
November's Existing Home Sales figures will be released late Tuesday morning. The National Association of Realtors is expected to announce a decline in home resales last month, indicating a slowing housing sector. This report will give us a measurement of housing sector strength and mortgage credit demand. A sizable decline in sales would be considered positive for bonds and mortgage rates because a softening housing market makes broader economic growth more difficult. But unless the actual sales figures vary greatly from forecasts, the results will probably have a minor impact on mortgage rates.
There are four pieces of economic data being posted Wednesday morning. It starts with November's Durable Goods Orders at 8:30 AM ET. This data gives us an important measurement of manufacturing sector strength by tracking orders for big-ticket items or products that are expected to last at least three years such as appliances, airplanes and electronics. Analysts are expecting the report to show a 0.7% decline in new orders. A larger drop in new orders would indicate that the manufacturing sector was weaker than many had thought. This would be good news for the bond market and should help push mortgage rates lower. However, a large jump in orders could lead to mortgage rates moving higher early Wednesday morning. This data is known to be quite volatile from month-to-month though, so it is not unusual to see large headline numbers in this report.
Next up is November's Personal Income and Outlays data, also at 8:30 AM ET. It will give us an important measurement of consumer ability to spend and current spending habits. Since consumer spending makes up over two-thirds of the U.S. economy, any related data usually has a noticeable impact on the financial markets and mortgage rates. Current forecasts are calling for a 0.3% increase in income and a 0.3% increase in spending. If this report reveals weaker than expected readings, we could see the bond market improve and mortgage rates drop slightly Wednesday morning, especially if the Durable Goods Orders report gives us favorable results also.
The third release of the day is the revised University of Michigan Index of Consumer Sentiment for December just before 10:00 AM ET. Current forecasts are calling for a slight increase (92.0 from 91.8), meaning surveyed consumers felt a little better about their own financial and employment situations than they did in October. Bond traders would prefer to see a decline because waning confidence usually means consumers are less likely to make a large purchase in the near future.
November's New Home Sales data is the final monthly economic report of the week. This report gives us another measurement of housing sector strength and mortgage credit demand. It is the sister report of Tuesday's Existing Home Sales report, but covers a much smaller portion of the housing market than that one does. A weakening housing sector is considered good news for the bond market and mortgage rates because broader economic growth is less likely in the immediate future. Since bonds tend to thrive in weaker economic conditions, a large decline would be considered favorable for bond prices and mortgage rates. Current forecasts are calling for an increase in sales of newly constructed homes. Ideally, we would like to see a large drop in sales.
We also have early closings this week that sometimes influence trading. The stock and bond markets will both close early Thursday ahead of Friday’s Christmas Day holiday and will reopen for regular trading hours Monday. Trading will likely be thin Wednesday afternoon as traders head home for the holiday. It is fairly common for some traders to sell small portions of their holdings before a holiday or long weekend to protect themselves from unforeseen events that may take place while U.S. markets are closed. That is more common on 3-day weekends than just a day-and-a-half holiday, especially when the geopolitical and international financial issues seem to be calm. However, the possibility does exist, so minor losses in trading Thursday morning will not be of much concern.
Overall, labeling Wednesday as the key day of the week for mortgage rates is an easy call with four report releases, but Tuesday may also be pretty active for the markets and mortgage rates.