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 will be closed tomorrow in observance of the Memorial Day holiday and will reopen for regular trading Tuesday morning. Accordingly, we will not be updating this report tomorrow.
April's Personal Income and Outlays data is the first release of the week at 8:30 AM ET Tuesday. This Commerce Department report 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 0.4% 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 reading would likely cause rates to move slightly higher. It is expected to show a reading of 119.5, down from April's 120.3 reading.
Wednesday's only 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.
There are three monthly and quarterly reports coming Thursday. 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 175,000 new payrolls were added. The lower the number of jobs, the better the news it is for mortgage rates.
Revised 1st Quarter Productivity and Costs data will also be posted early Thursday morning. This data measures employee output and employer costs for wages and benefits. It is considered to be a measurement of wage inflation. Many analysts believe that the economy can grow with low inflationary pressures when productivity is high. Last month's preliminary reading revealed a 0.6% decline in productivity and a 3.0% increase in labor costs. Thursday's update is predicted to show that productivity fell at a 0.6% annual rate while labor costs rose 2.9%. I don't think this piece of data will have much of an impact on the bond market or mortgage pricing.
The final report of the day will be the Institute for Supply Management’s (ISM) manufacturing index at 10:00 AM ET Thursday. This 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 54.7 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 an increase could contribute to higher mortgage rates Thursday.
May's Employment data will close out this week’s calendar 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 remain at 4.4% with approximately 185,000 jobs added to the economy during the month. A higher than expected unemployment rate and a much smaller payroll number 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.
Overall, it appears that Friday is the key day of the week with regards to mortgage rate movement due to the significance of the Employment report. However, Thursday could also be a pretty active day for mortgage pricing. Wednesday will probably be the lightest day, particularly the morning, unless something unexpected happens with stocks. We have some key data being posted this week. Therefore, it would be prudent to continue to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.