This week brings us the release of six relevant economic reports for the markets to digest. A couple of these reports are considered to be key data. We also have trade news and stocks to watch, particularly the planned meeting between the U.S. and Mexico Wednesday. With so much on the calendar, there is a good possibility of seeing plenty of movement in the markets and mortgage rates as a result.
The Institute for Supply Management's (ISM) manufacturing index will start the week's reports at 10:00 AM ET tomorrow. This release is highly important to the markets as it 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 52.6 reading in this month's release, meaning that sentiment softened 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.
Tuesday’s release will be April's Factory Orders data that is similar to the Durable Goods Orders report that was posted the week before last. This release also includes orders for non-durable goods such as food and clothing. It can cause some movement in the financial markets if it varies from forecasts by a wide margin, but it isn't expected to cause much of a change in rates. Current forecasts are calling for a 0.9% decline in new orders from March's level. Weaker manufacturing numbers make long-term securities, such as mortgage bonds, more attractive to investors.
Wednesday has May's ADP Employment report scheduled 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 175,000 new payrolls were added. The lower the number of jobs, the better the news it is for mortgage rates.
The second 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 rally 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.
Revised 1st Quarter Productivity and Costs data from the first quarter will be posted early Thursday morning. This data measures employee output and employer costs for wages and benefits. It is considered to be moderately important because it helps us measure wage inflation. Many analysts believe that the economy can grow with low inflationary pressures when productivity is high. Last month's preliminary reading revealed a 3.6% rise in productivity and a 0.9% decline in labor costs. Thursday's update is predicted to show that productivity grew at a 3.4% annual rate while labor costs dropped 0.8%. I don't think this piece of data will have much of an impact on the bond market or mortgage pricing unless it varies greatly from expectations.
The week’s calendar closes with May's Employment report at 8:30 AM ET Friday. This extremely important report 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 move up slightly to 3.7% with approximately 180,000 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.
Overall, Friday is the most important day of the week, but we could also see a noticeable change in mortgage rates tomorrow or Wednesday. The calmest day for rates may be Tuesday unless something unexpected happens. With the markets so active recently and so much on tap this week, it would be very prudent to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.