This week brings us the release of five pieces of monthly economic data with one being considered highly important. In addition to the economic data, the minutes from the last FOMC meeting will also be posted. There is nothing of relevance to mortgage rates scheduled for release tomorrow, so look for the stock markets to drive bond trading and mortgage rates until we get to the start of this week's activities.
The first piece of data will be will be July's Retail Sales data at 8:30 AM ET Tuesday. This highly important report comes from the Commerce Department and will give us a measurement of consumer spending. Consumer level spending figures are extremely relevant to the markets because it makes up over two-thirds of the U.S. economy. Current forecasts are calling for a 0.3% increase in sales. Analysts are also calling for a 0.3% rise in sales if more volatile and costly auto transactions are excluded. Larger than expected increases would be considered bad news for bonds and likely lead to an increase in mortgage pricing since it would indicate stronger economic growth.
July's Housing Starts will be released at 8:30 AM ET Wednesday, giving us an indication of housing sector strength and future mortgage credit demand. It usually doesn't cause much movement in mortgage rates unless it varies greatly from forecasts. Wednesday's release is expected to show a slight increase in construction starts of new homes last month. The lower the number of starts, the better the news for the bond market, as it would indicate a weaker than expected new home portion of the housing sector.
A second release Wednesday will come during afternoon hours. That is when we will get the minutes from the last FOMC meeting. There is a pretty good possibility of the markets reacting to them following their release. Market participants will be looking for how Fed members voted during the last meeting and any comments about inflation concerns in the economy, economic growth and the Fed's plans for raising short-term interest rates or reducing their balance sheet. Since the minutes will be released at 2:00 PM ET, if there is a market reaction to them it will be evident during mid-afternoon trading. This is one of those events that can cause significant movement in rates after its release or be a non-factor. Therefore, be prepared for a move, but not surprised if the impact on rates is minimal.
Thursday has two pieces of monthly economic data for the markets to watch. The first will be July's Industrial Production report at 9:15 AM ET that measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.3% increase from June's level. A decline would be considered favorable news for bonds and mortgage rates because it would indicate manufacturing sector weakness and broader economic growth would be more difficult if manufacturing activity is slipping.
The Conference Board is a New York-based business research group that will post its Leading Economic Indicators (LEI) for July late Thursday morning. This index attempts to measure economic activity over the next three to six months and is considered to be moderately important. A higher than expected reading is bad news for the bond market because it indicates that the economy may be strengthening more than thought. However, a weaker reading means that the economy may not grow as much as predicted, making stocks less appealing to investors. This also eases economic growth concerns in the bond market and could lead to slightly lower mortgage rates Thursday. It is expected to show an increase of 0.3% in the index, indicating moderate economic growth over the next couple of months. It will take a sizable difference between forecasts and its actual reading for this report to noticeably influence mortgage rates.
The last release of the week will come from the University of Michigan late Friday morning. Their Index of Consumer Sentiment for August will give us an indication of consumer confidence, which projects consumer willingness to spend. If a consumer's confidence in their own financial and employment situation is rising, they are more apt to make large purchases in the near future. But, if they are growing more concerned about their job security or finances, they probably will delay making that large purchase. This influences future consumer spending data and therefore, impacts the financial markets. It is expected to show a reading of 94.0 that would mean confidence was stronger than July's level of 93.4. That would be considered slightly negative news for bonds and mortgage rates. Good news for mortgage shoppers would be a sizable decline in the index.
Overall, Tuesday is likely to be the most active day for mortgage rates due to the Retail Sales data being posted. Tomorrow is the best candidate for least important, but we still could see some movement as a result of this weekend’s news and an early move in stocks.