This week brings us the release of four economic reports for the markets to digest with two of those reports being much more important than the others. In addition to the data, there is also a high number of speaking engagements by Federal Reserve members that always draw attention. For the week we can expect to see noticeable movement in rates, but the moves likely will come over just a couple days.
The first release of the week will come from the Institute for Supply Management (ISM), who will post their manufacturing index at 10:00 AM ET tomorrow. This index measures manufacturer sentiment, which is important because it gives us an indication of manufacturing sector strength. It is considered to be one of the more important reports we see each month, partly because it is the first report that tracks the preceding month's activity. Tomorrow's release is expected to show a September reading of 50.4, indicating that manufacturer sentiment strengthened from August's 49.4 level. This means more surveyed manufacturing executives felt business improved during the month than in August, hinting at manufacturing sector growth. A smaller than expected reading would be good news for bonds and likely lead to lower mortgage rates tomorrow. It is worth noting that a reading below 50.0 is significant because it indicates contraction in the sector.
The second report of the week will be September’s ADP Employment report before the markets open Wednesday. 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 accurate in predicting results of the monthly government report that follows a couple days later. Still, because we have seen reaction to the report, we should be watching it. Analysts are expecting it to show that 171,000 new payrolls were added. The lower the number of jobs, the better the news it is for mortgage rates.
August's Factory Orders data will also be released Wednesday morning. This 10:00 AM Commerce Department report is similar to last week's Durable Goods Orders release except it includes orders for both durable and non-durable goods. It is expected to show a 0.1% rise in new orders from July's level. A large decline would be good news for the bond market and mortgage rates while an unexpected rise would be bad news and could push rates slightly higher Wednesday morning since it would indicate economic strength. It is worth noting though, that this report is not considered to be highly important to mortgage rates.
The last report of the week is the most important. Friday brings us the release of arguably the most important monthly piece of economic news- the Employment report. The Labor Department will post September's employment stats early Friday morning. The report is comprised of many statistics and readings, but the most important ones are the unemployment rate, the number of new jobs added or lost during the month and average hourly earnings. Current forecasts call for no change in the unemployment rate, holding at 4.9%, an increase in payrolls of approximately 176,000 and a 0.2% increase in average earnings. Weaker than expected readings should ease concerns about labor market strength and rally bonds enough to improve mortgage rates, especially if the stock markets react poorly to the news.
Overall, the single most important day is Friday but tomorrow is likely to be pretty active also. Tuesday will probably be the calmest day unless something unexpected happens. Besides the relevant economic data set for release three days of the week, the fairly full Fed speaking schedule can also cause volatility in the markets at any time. This leads me to believe that we will see an active week for mortgage rates.