This week brings us the release of six economic reports for the bond and mortgage markets to digest in addition to another FOMC meeting. We have data or other events that are expected to influence mortgage rates set every day, so we could see plenty of movement in rates this week. The data scheduled ranges from minor to extremely important, meaning some reports will have a much bigger impact on rates than others.
The first release of the week will come from the Commerce Department who will post September's Personal Income and Outlays report at 8:30 AM ET tomorrow morning. This data gives us an indication of consumer ability to spend and current spending habits. It is important to the markets because consumer spending makes up such a large part of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is bad news for the bond market and mortgage rates because it raises inflation concerns, making long-term securities such as mortgage related bonds less attractive to investors. Analysts are expecting to see a 0.4% increase in income and a 0.5% rise in spending. Smaller than expected increases in both readings would be good news for the bond market and mortgage pricing.
Tuesday’s only release is one of the very important reports of the week. That will be the Institute for Supply Management’s (ISM) manufacturing index for October at 10:00 AM ET. 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 every month that tracks the preceding month's activity. Tuesday's release is expected to show a reading of 51.7, indicating that manufacturer sentiment rose modestly from September's level. This means more surveyed manufacturing executives felt business improved during the month than in September, hinting at slightly stronger manufacturing sector activity. A smaller than expected reading would be good news for bonds and likely lead to lower mortgage rates.
Wednesday's only economic report worth watching is the ADP Employment report 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 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 165,000 new payrolls were added. The lower the number of jobs, the better the news it is for mortgage rates.
This week's FOMC meeting is a two-day meeting that begins Tuesday and adjourns Wednesday afternoon. It is widely expected that the Fed will not make a change to key short-term interest rates. Chairperson Janet Yellen and friends have indicated they expect to make a rate hike before the end of the year, but it would come as a major surprise if it came at this meeting. The Fed traditionally does not make changes to monetary policy close to a presidential election. Therefore, the consensus is that the rate hike will come during December’s FOMC meeting. Wednesday’s meeting will adjourn at 2:00 PM ET and does not include economic projections or a press conference. These meetings normally have a strong likelihood of causing volatility in the markets. However, I believe this one will have less of an impact than usual.
The 3rd Quarter Productivity reading will be released Thursday at 8:30 AM ET. It is expected to show a 1.8% improvement in worker productivity during the third quarter. A larger increase would be good news for the bond market because higher levels of employee productivity allow the economy to expand without inflationary pressures being a concern. This is a relatively low importance report, meaning it will take a significant variance from forecasts for it to directly affect mortgage rates.
Also set for release Thursday morning is September's Factory Orders data at 10:00 AM ET. This 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 0.2% increase in new orders from August'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 Thursday 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 either.
The last report of the week is the most important we get each month. Friday brings us the release of October’s Employment report at 8:30 AM ET. 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 a 0.1% drop in the unemployment rate, slipping to 4.9%, an increase in payrolls of 175,000 and a 0.3% increase in average earnings. Weaker than expected readings should renew concerns about the labor market 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 Tuesday is likely to be pretty active also. We have plenty of relevant data set for release this week along with the FOMC meeting. This makes it quite possible that we will see another active week for mortgage rates.