This week has five economic reports that are expected to influence mortgage rates with one being a key piece of data. As we did last week, we also have political issues to be concerned with that can heavily affect the markets and mortgage rates. This week’s data, along with the tax reform, Russia investigation and other events out of Washington, make it likely that we will have another active week for mortgage rates.
October's Factory Orders report will start this week’s activities at 10:00 AM ET tomorrow morning. This Commerce Department report is similar to the Durable Goods Orders report that was released the week before last, except this one includes manufacturing orders for both durable and non-durable goods. This release usually doesn't have a significant influence on bond trading since a good portion of the data has previously been made public. Analysts are expecting to see a 0.4% decline in new orders. The weaker the number, the better the news for bond prices and mortgage rates because it would signal softer than expected manufacturing sector activity.
Tuesday has nothing set for release, but Wednesday has two that we will be watching. The first is the ADP Employment report for November before the markets open, which has the potential to cause some movement in the markets if it shows much stronger or weaker numbers. This report tracks changes in private-sector jobs of the company'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 noticeable reaction to the report, it is on this week's calendar. Analysts are expecting to see 190,000 new private-sector payrolls last month.
The second report of the day will be revised 3rd Quarter Productivity numbers at 8:30 AM ET. This index is expected to show a small upward revision from the preliminary reading of worker productivity. Higher levels of productivity are thought to allow the economy to expand without inflationary pressures rising. This is good news for the bond market because economic growth itself isn't necessarily bad for the bond market. It's the conditions around an expanding economy, such as inflation, that hurt bond prices and mortgage rates. Current forecasts are calling for an annual rate in productivity of 3.3%, up from the previous estimate of 3.0%. The higher the reading, the better the news for the bond market. Although, this report generally does not have a noticeable impact on mortgage pricing, so it will take a wide variance to draw much attention.
The biggest news of the week comes early Friday morning when the Labor Department posts November's Employment figures. This is arguably the most important monthly report we see, so its impact on the markets and mortgage rates is often significant. It is comprised of many statistics and readings, but the most watched are the unemployment rate, the number of news jobs added or lost during the month and average hourly earnings. Current forecasts call for no change in the unemployment rate of 4.1% while 188,000 new jobs were added to the economy. The income reading is forecasted to show an increase of 0.3%. An ideal scenario for mortgage shoppers would be a higher unemployment rate, a much smaller increase in payrolls (or a decline) and no change in the earnings reading. If we are fortunate enough to hit the trifecta with all three, we should see bond prices rise and mortgage rates move much lower Friday. However, stronger than expected readings would likely fuel a bond sell-off that would lead to higher mortgage rates.
Also worth noting is that extra attention will be given to this month's Employment report because it is the last one before this month FOMC meeting. It is at that meeting that many analysts and market participants expect the Fed to push key short-term interest rates higher by a quarter-point. If this report meets or exceeds expectations, it is highly likely that the Fed will make that planned move this month. On the other hand, surprisingly weak numbers throw into question whether they will make that rate hike now or wait for the first 2018 meeting to do so. Any possibility of a delay in the rate hike should be taken as good news in the bond market.
The final report of the week is the release of December's preliminary reading to the University of Michigan's Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to change mortgage rates slightly if it shows a sizable miss from forecasts. Consumer sentiment or confidence is tracked because the more comfortable consumers are about their own financial situations, the more likely they are to make a large purchase in the near future. Since consumer spending makes up such a large part of our economy, any related data is watched closely. Friday's release is expected to show a reading of 98.8, which would be a small increase from last month's final reading of 98.5. A large decline in confidence would be considered good news for the bond market and mortgage rates.
Overall, Friday is the most important day of the week due to the release of the monthly Employment report. Tomorrow should also be active due to the Senate’s passage of their tax reform bill over the weekend. We saw a very volatile day Friday with major headlines on the tax vote and political news related to Russia investigation. This week shouldn’t be much different. Therefore, please maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.