There is plenty to keep our attention this week with seven economic reports, including two highly influential releases, in addition to Fed congressional testimony and a National Day of Mourning. The markets will be closed Wednesday due to the day of mourning. The week starts and ends with those extremely important economic reports. In between, there are also plenty of events that may affect mortgage rates. With such a packed calendar, something of relevance taking place four of five days and the benchmark 10-year Treasury yield testing a key resistance level, it should be an interesting week for the markets and mortgage pricing.
The week starts tomorrow with a major release. November's Institute for Supply Management's (ISM) manufacturing index will be posted at 10:00 AM ET. This index measures manufacturer sentiment and can have a considerable impact on the financial markets and mortgage rates. Current forecasts call for a decline in sentiment from October to November. October's reading was announced as 57.7. A weaker reading than the expected 57.2 would be good news for the bond market and mortgage rates. A reading above 50.0 means that more surveyed business executives felt business improved during the month than those who felt it had worsened. The lower the reading the better the news it is for bonds because waning sentiment indicates a slowing manufacturing sector and makes broader economic growth less likely.
Tuesday has nothing scheduled, but Wednesday is going to make up for it. Despite the financial and mortgage markets being closed in observance of President George H.W. Bush’s passing, we have four events 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 using 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 182,000 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 no change 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 bonds. It's the conditions around an expanding economy, such as rising inflation, that hurt bond prices and mortgage rates. Current forecasts are calling an annual rate in productivity of 2.2%, matching the previous estimate. 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.
Next up is a congressional appearance by Fed Chairman Powell at 10:15 AM ET. It is worth noting that it is not clear if the Executive Order for a National Day of Mourning will cause this event to be rescheduled or not. As of now, Chairman Powell is expected to update a joint committee on the status of the economy Wednesday morning. These types of appearances are widely watched and can have a significant influence on the financial and mortgage markets if they yield any surprises on the strength of the economy or changes to the Fed's monetary policy plans. His prepared statement may be released prior to his actual appearance, so a reaction may come during early or late morning trading.
Later Wednesday, the Federal Reserve will release their Beige Book at 2:00 PM ET. This report is named simply after the color of its cover and details economic conditions by Fed region. That information is relied upon heavily during the FOMC meetings when determining monetary policy, so its results can influence bond trading and mortgage rates if it shows any major changes from the last update. More times than not though, this report will not influence the markets enough to cause intra-day changes to mortgage rates, but the potential to do so does exist.
October's Factory Orders report will come late Thursday morning. This Commerce Department report is similar to the Durable Goods Orders report that was released Thanksgiving week, 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 2.0% 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.
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 3.7% while 189,000 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 hit the trifecta with all three, we should see bond prices rise and mortgage rates move much noticeably lower Friday. However, stronger than expected readings may fuel bond selling that would lead to higher mortgage rates.
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 96.8, which would be a decline from last month's final reading of 97.5. A large decline in confidence would be considered good news for the bond market and mortgage rates.
Overall, choosing the most important day is not a simple task this week. The single most important report is Friday’s Employment report and Wednesday has a bunch of events including Chairman Powell’s congressional testimony but no bond trading. With indications and hints that the Fed may be altering the language in their post-meeting statements soon, we could get something from his appearance that may be market-moving. That is assuming that his appearance does not get rescheduled. What is fairly simple to label is Tuesday being the calmest day for rates unless something completely unexpected takes place. If still floating an interest rate and closing in the near future, it would be extremely prudent to maintain contact with your mortgage professional this week.