This week brings us the release of six pieces of economic data that are likely to affect mortgage rates. Only one is considered to be very important and even it fails to move the markets or mortgage pricing many months. But as we have seen recently, we don't necessarily need to have key data being posted to have volatility in the markets.
September's Industrial Production data will start the week at 9:15 AM ET tomorrow. It will give us an indication of manufacturing strength by tracking output at U.S. factories, mines and utilities. Analysts are expecting it to show a 0.2% increase in output from August's level, meaning that manufacturing activity strengthened slightly last month. A large increase in production would be negative for bonds and mortgage rates as it would indicate economic strength. A decline in output would be favorable for mortgage shoppers.
Next up is September's Consumer Price Index (CPI) at 8:30 AM ET Tuesday. It measures inflationary pressures at the very important consumer level of the economy and is one of the most important reports that the bond market gets each month. Analysts are expecting to see a 0.3% increase in the overall index and an increase of 0.2% in the core data. A larger than expected increase in the core reading could raise inflation concerns, pushing bond prices lower and mortgage rates higher. Inflation is the number one nemesis of the bond market because it erodes the value of a bond's future fixed interest payments. When inflation is a threat, even down the road, bonds sell for discounted prices that push their yields higher. And since mortgage rates tend to follow bond yields, this leads to higher rates for mortgage borrowers.
Wednesday has two reports scheduled that we will be watching. The first is September's Housing Starts at 8:30 AM ET. This Commerce Department report will probably not have much of an impact on the bond market or mortgage rates. It gives us a measurement of housing sector strength and mortgage credit demand by tracking construction starts of new homes, but is usually considered to be of low importance to the financial and mortgage markets. It is expected to show an increase in new home starts between August and September. I believe we need to see a significant surprise in this data for it to have an impact on Wednesday's mortgage rates.
The Federal Reserve will release their Beige Book report Wednesday afternoon. 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 may see mortgage rates revise higher as a result.
The final two reports will be posted late Thursday morning. Neither are considered to be of high importance to the markets but both can lead to minor changes in mortgage pricing. One is September's Existing Home Sales data that will give us an indication of housing sector strength and mortgage credit demand by tracking home resales. It is expected to show a small decline in sales from August to September, meaning the housing sector was flat. That would be relatively good news for the bond market since a strengthening housing sector makes broader economic growth more likely and bonds less appealing to investors. Ideally, it would show a sizable decline in sales that points toward a weakening housing sector.
Thursday also has September's Leading Economic Indicators (LEI) from the Conference Board. This index attempts to measure future economic activity, particularly during the next three to six months. Current forecasts are calling for an increase of 0.2% from August's reading. This would indicate that economic activity is likely to increase over the next couple of months. That would technically be bad news for the bond market and mortgage rates, but this report is considered to be only moderately important. Therefore, a small increase would not be of much concern to the bond and mortgage markets. A large decline would be favorable to mortgage pricing.
Overall, no particular day stands out as key for the week. We will likely see small moves in rates several days instead of a large move one or two days. The least active day could be Friday since it is the only day of the week with no relevant data set for release. Still, large moves in stocks or geopolitical/financial news can cause the markets to become active any day.