This week is packed with relevant economic releases and other events that have the potential to affect mortgage rates. There are eight relevant economic reports for the bond and mortgage markets to digest in addition to another FOMC meeting. We have data or other events every day, so we should 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 that make long-term securities such as mortgage-related bonds less attractive to investors. Analysts are expecting to see a 0.3% increase in income and a 0.8% rise in spending. The jump in spending is more likely a result of storm-related purchases, so it its impact on the markets should be restricted. Smaller than expected increases in both readings would be good news for the bond market and mortgage pricing.
The 3rd Quarter Employment Cost Index (ECI) will be released at 8:30 AM ET Tuesday. This data tracks employer costs for salaries and benefits, giving us an indication of wage inflation pressures. Rapidly rising costs raises wage inflation concerns and may hurt bond prices. It is expected to show an increase in costs of 0.6%. A smaller than expected increase would be good news for mortgage rates, but this is not one of the more important reports of the week.
October's Consumer Confidence Index (CCI) is next, coming late Tuesday morning. This Conference Board index gives us a measurement of consumer willingness to spend. It is expected to show a rise in confidence from last month's 119.8 reading. That would mean that surveyed consumers better about their own financial and employment situations than they did last month, indicating they are more likely to make large purchases in the near future. That would be unfavorable news for the bond market because consumer spending makes up over two-thirds of our economy. Current forecasts are showing a reading of 121.5. The lower the reading, the better the news it is for mortgage rates.
Wednesday starts with two morning economic reports, one of which is very important. The first 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, mostly 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 217,000 new payrolls were added. The lower the number of jobs, the better the news it is for mortgage rates.
The second and more important report of the day 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. Wednesday's release is expected to show a reading of 59.3, indicating that manufacturer sentiment slipped from September's level 60.8. This means fewer surveyed manufacturing executives felt business improved during the month than in September, hinting at weaker manufacturing sector activity. A smaller than expected reading would be good news for bonds and likely lead to lower mortgage rates.
This week's FOMC meeting 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. That means that market participants are expecting it to come during December’s 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 unless there is a surprise in talk of the Fed’s balance sheet reduction plan.
The 3rd Quarter Productivity reading will be released Thursday at 8:30 AM ET. It is expected to show a 2.8% 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, so it will take a significant variance from forecasts for it to directly affect mortgage rates.
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% increase in the unemployment rate, rising from 4.2% to 4.3%. It is also expected to show an increase in payrolls of 300,000, rebounding from September’s surprising loss of 33,000 jobs. The third headline number is average earnings that is expected to reveal a 0.1% rise. Weaker than expected readings should renew concerns about the labor market and rally bonds enough to improve mortgage rates noticeably, especially if the stock markets react poorly to the news.
The week’s calendar will close late Friday morning when September's Factory Orders data is released. 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 1.2% 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. However, it is worth noting though, that this report is not considered to be highly important to mortgage rates and it follows a major release. Therefore, it probably will not play a role in Friday’s mortgage pricing.
Overall, the single most important day is Friday due to the Employment report but Wednesday is expected 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 likely that we will see another active week for mortgage rates. Accordingly, please maintain contact with your mortgage professional if still floating a rate and closing in the near future.