The Conference Board starts the week’s calendar 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 than they did last month 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 127.5, down from April's 128.7 reading.
Wednesday has three reports that we will be watching. May’s 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, using ADP's payroll processing clients as a base. 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 183,000 new payrolls were added. The lower the number of jobs, the better the news it is for mortgage rates.
Also Wednesday morning will be the first revision to the 1st quarter Gross Domestic Product (GDP). The GDP is the sum of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth. Last month's preliminary reading revealed a 2.3% annual rate of growth. Analysts expect no change in this update. If the revision comes in stronger than the last estimate, we may see the bond market react negatively and mortgage rates move higher because it would mean the economy was stronger than thought last quarter. Since bonds tend to thrive in weaker economic conditions, a softer than predicted reading would be good news for mortgage rates.
The third release of the day will be 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.
April's Personal Income and Outlays data is Thursday’s sole monthly report. 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 0.3% increase in income and a 0.3% rise in spending. Weaker readings would be considered good news for bonds and mortgage rates.
Friday morning has two major reports set for release, beginning with May's Employment report at 8:30 AM ET. It will give us key employment readings such as the U.S. unemployment rate, the number of jobs added or lost during the month and average earnings change. Analysts are expecting to see the unemployment rate remain at 3.9% with approximately 190,000 jobs added to the economy during the month with a 0.3% increase in earnings. A higher than expected unemployment rate and a much smaller payroll number and earnings 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.
The Institute for Supply Management's (ISM) manufacturing index will close out the week’s reports at 10:00 AM ET. This release is also highly important and measures manufacturer sentiment about current business conditions. 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 58.0 reading in this month's release, meaning that sentiment strengthened 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 Friday.
Overall, Friday is the most important day of the week due to the two major economic releases but we could see a noticeable move in rates multiple days. We saw the benchmark 10-year Treasury Note yield fall back below 3.0% last week. This week’s data is important enough to push yields and mortgage rates through any resistance level, so favorable results this week could cause the 10-year yield to move well below 3.0%. On the other hand, unfavorable results could push it back above, bringing mortgage rates higher. It is highly likely to be an active week for the financial and mortgage markets. Therefore, please proceed cautiously if still floating an interest rate and closing in the near future.