This holiday-shortened week brings us the release of seven relevant economic reports for the markets to digest. A couple of these reports are considered to be key data, so we may see plenty of movement in the markets and mortgage rates as a result. The financial and mortgage markets closed Monday in observance of the Memorial Day holiday and will reopen for regular trading Tuesday morning.
April's Personal Income and Outlays data is the first of the week at 8:30 AM ET Tuesday. It gives us an indication of consumer ability to spend and current spending habits. An increase in income means that consumers have more money available to spend. Since consumer spending makes up over two-thirds of our economy, this data can cause movement in the financial markets and mortgage rates. Current forecasts are showing a 0.4% increase in income and a 0.7% rise in spending. Weaker readings would be considered good news for bonds and mortgage rates.
The Conference Board is next with their Consumer Confidence Index (CCI) at 10:00 AM Tuesday. This data measures consumer willingness to spend. If the index rises, it indicates that consumers felt better about their personal financial and employment situations and therefore are more apt to make large purchases in the near future. If confidence is sliding, analysts think consumer spending may slow in the near future. The latter is good news for the bond market because consumer spending is such a big portion of the U.S. economy. A decline in the index should boost bond prices and push mortgage rates lower Tuesday morning while a larger than expected increase would likely cause rates to move higher. It is expected to show a reading of 96.2, up from April's 94.2 reading.
There are three reports worth watching Wednesday. The ADP Employment report is first, set for release before the markets open. It has the potential to cause some movement in the markets if it shows much stronger or weaker numbers than expected. This report tracks changes in private-sector jobs of ADP'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 reaction to the report, we should be watching it. Analysts are expecting it to show that 180,000 new payrolls were added. The lower the number of jobs, the better the news it is for mortgage rates.
Also Wednesday morning, the Institute for Supply Management (ISM) will post their manufacturing index. This 10:00 AM ET release is highly important and measures manufacturer sentiment about current business conditions. One reason why it is considered so important is the fact that it is the first piece of economic data posted every month that covers the preceding month. In other words, it is the first look into the previous month's economic conditions. That differs from many reports that aren't released until mid or late month. A reading above 50 means that more surveyed manufacturing executives felt that business improved during the month than those who felt it had worsened. Analysts are expecting to see a 50.4 reading in this month's release, meaning that sentiment slipped a little during May. A smaller reading will be good news for the bond market and mortgage shoppers while a larger than expected increase could contribute to higher mortgage rates Wednesday.
Wednesday's other relevant report is the Federal Reserve's Beige Book, which is named simply after the color of its cover. This report details economic conditions throughout the U.S. by Federal Reserve region. It is relied upon heavily by the Fed to determine monetary policy during their FOMC meetings. If it shows surprisingly softer economic activity since the last report, the bond market may thrive and mortgage rates could drop shortly after the 2:00 PM ET release. If it reveals signs of inflation growing or rapidly expanding economic activity in many regions, we could see mortgage rates revise higher Wednesday afternoon.
Thursday doesn’t have any monthly or quarterly reports to worry about, but Friday has two scheduled including one of the biggest reports we regularly see. That will come from the Labor Department, who will post May's Employment data early Friday morning. It will give us key employment readings such as the U.S. unemployment rate and the number of jobs added or lost during the month. Analysts are expecting to see the unemployment rate fall to 4.9% in May from 5.0% in April with approximately 157,000 jobs added to the economy during the month. A higher than expected unemployment rate and a much smaller number than 157,000 would be great news for the bond market. It would probably create a sizable rally in bonds, leading to lower mortgage rates Friday. However, stronger than expected numbers should cause a stock rally and a spike in mortgage rates.
The final release of the week will come from the Commerce Department at 10:00 AM Friday. They will post April's Factory Orders report that is similar to last week's Durable Goods Orders release, but also includes orders for non-durable goods. It can cause some movement in the financial markets if it varies from forecasts by a wide margin, but it isn't expected to cause much of a change in rates this month because it follows the almighty Employment report. Current forecasts are calling for a 1.6% jump in new orders from March's level.
Overall, it appears that Friday is the key day of the week with regards to mortgage rate movement. However, Wednesday could also be a pretty active day for mortgage pricing also. Thursday will probably be the lightest day unless something totally unexpected happens with stocks.