This week brings us the release of nine pieces of economic data that are likely to influence mortgage rates in addition to an FOMC meeting. While that's a large number of reports, it is the fact that two of them are extremely important and can heavily impact mortgage rates that makes the week so interesting. The number of reports and the importance of some of them leads me to believe it is going to be a very active week for the financial and mortgage markets.
The calendar begins tomorrow with two months’ worth of Personal Income and Outlays data at 8:30 AM ET. It helps us measure consumer ability to spend and current spending habits. This information is important to the mortgage market due to the influence that consumer spending-related data has on the financial markets. If a consumer's income is rising, they have the ability to make additional purchases in the near future, fueling economic growth. This raises inflation concerns and has a negative impact on the bond market and mortgage rates. We will get February’ and March’s data tomorrow, finalizing the catch-up from the government shutdown. Current forecasts are calling for a 0.4% increase in March’s income reading and a 0.7% rise in spending. This report also contains an inflation reading that the Fed relies on during their FOMC meetings- the PCE. It is expected to have risen 0.2% with core data rising 0.1%. February’s result will likely not be a factor because their age and were partially released previously. If we see weaker than expected March readings, the bond market should open higher tomorrow morning.
Tuesday has two different reports scheduled, starting with the 1st Quarter Employment Cost Index (ECI) at 8:30 AM ET. This index tracks employer costs for wages and benefits, giving us a measurement of wage-inflation. If it shows a large increase, we may see wage inflation concerns rise as employers will need to pass those increases into the pricing of their products and services. That would be bad news for bonds and mortgage rates. A smaller than expected increase would be good news. Current forecasts are showing a rise of 0.7%.
April's Consumer Confidence Index (CCI) will be posted at 10:00 AM ET Tuesday. This index is considered to be an indicator of future spending by consumers. The Conference Board surveys 5,000 consumers from across the country about their personal financial situations. If sentiment is strong or rising, it is believed that consumers are more apt to make large purchases in the near future. However, if they are concerned about issues such as job security and savings, they will probably delay making large purchases. The latter is better for the bond market and mortgage rates because the expected slowdown in spending would keep inflation and economic growth to a minimum. On the other hand, a sizable increase could hurt the bond market, pushing mortgage rates higher Tuesday. It is expected to show a reading of 127, which would be an increase from March's 124.1 reading. The lower the reading, the better the news it is for mortgage rates.
The ADP Employment report is set for release early Wednesday morning, 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 ADP's clients that use them for payroll processing 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 accurate in predicting results of the monthly government report that usually follows a couple days later. Still, because we do often see a reaction to the report, we should be watching it. Analysts are expecting it to show that 170,000 new payrolls were added. The lower the number of jobs, the better the news it is for mortgage rates.
One of the big economic reports is the Institute for Supply Management's (ISM) manufacturing index for April Wednesday morning but 10:00 AM ET. This is usually the first important economic report released each month and gives us an indication of manufacturer sentiment. A reading above 50 means that more surveyed trade executives felt business improved during the month than those who felt it had worsened. This points toward more manufacturing activity and could hurt bond prices, pushing mortgage rates higher. Analysts are expecting to see a reading of 55.0 down from March's 55.3. Bond traders would prefer to see a reading below 50.0 as it would hint at contraction in the manufacturing sector rather than growth, but a larger decline from March's level would still be good news for mortgage shoppers.
This week's FOMC meeting will begin Tuesday and adjourn Wednesday afternoon. It will likely adjourn with an announcement of no change to key short-term interest rates, but we may see some volatility in the markets following the post-meeting statement. If the statement gives any hint of when the next rate change may come, we could see a sizable change to mortgage rates Wednesday afternoon. This meeting will be followed by a press conference with Fed Chairman Powell but will not include revised economic projections.
Thursday has two moderately important reports set to be posted. First will be the 1st Quarter Productivity and Costs data at 8:30 AM ET. This information helps us measure employee productivity in the workplace. High levels of productivity help allow low-inflationary economic growth. If employee productivity is rapidly rising, the bond market should react favorably. However, a sizable decline could cause bond prices to drop and mortgage rates to rise slightly Thursday morning. It is expected to show a 0.8% rise in worker productivity during the first three months of the year.
The second report of the day Thursday will be February's Factory Orders at 10:00 AM ET. This data is similar to the Durable Goods Orders report that was posted last week, except it includes orders for both durable and non-durable goods. It will give us another measurement of manufacturing sector strength. It is considered to be only moderately important to the bond and mortgage markets, so unless it varies greatly from forecasts of a 1.6% increase, I suspect that the data will have a minimal impact on Thursday's mortgage rates.
The biggest economic news of the week will come early Friday morning when the Labor Department posts April's Employment report, revealing the U.S. unemployment rate and the number of jobs added or lost during the month and earnings data. This is an extremely important report to the financial and mortgage markets. It is expected to show that the unemployment rate held at 3.8% and that approximately 190,000 payrolls were added to the economy during the month. A higher unemployment rate and a much smaller than expected payroll number would be good news for bonds and would likely push mortgage rates lower Friday morning because it would indicate weaker than thought conditions in the employment sector of the economy. Good news in the earnings data would be a smaller reading than up 0.3%. However, stronger than expected results will probably fuel a stock rally and bond selling that leads to a sizable increase in mortgage pricing.
Overall, Friday is the biggest day of the week in terms of economic data driven mortgage rate movement, but Wednesday is also likely to be very active. With at least one item of importance released each day, there is a strong possibility of seeing plenty of movement in mortgage rates this week.