This week brings us the release of seven pieces of economic data that are worth watching, including two highly important reports. There also is another FOMC meeting taking place this week. The most important events are mid and late week, so we should see more movement in rates the latter days. Because the reports are spread over four days, we could see noticeable changes to rates multiple days. There is nothing of importance set for release tomorrow, the only day of the week that doesn't have something scheduled.
June's Personal Income and Outlays data will start this week's activities at 8:30 AM ET Tuesday morning. This report helps us measure consumer ability to spend and current spending habits. If it shows sizable increases, bond selling could lead to higher mortgage rates. Current forecasts are calling for an increase of 0.4% in income and a 0.3% rise in spending. A larger than expected increase in income means consumers have more money to spend, which is not favorable to bonds because consumer spending makes up over two-thirds of the U.S. economy. Ideally, we would like to see declines in spending and income, but the smaller the increase in each, the better the news for mortgage rates.
Late Tuesday morning, the Conference Board will release their Consumer Confidence Index (CCI) for July. This index measures consumer sentiment, giving us an idea of consumer willingness to spend. If consumers are more confident in their own financial and employment situations, they are apt to make large purchases in the near future. This is important because consumer spending makes up such a large portion of our economy. If the CCI reading is weaker than expected, meaning that consumers were less confident than thought and likely will delay making a large personal purchase, we may see bond prices rise and mortgage rates drop Tuesday morning. Current forecasts are calling for a reading of 125.5, which would be an increase from June's 121.5.
Wednesday will also be a busy day, starting with July's ADP Employment report before the markets open. It 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 their 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 noticeable reaction to the report, it is on this week's calendar. Forecasts show an increase of 150,000 new payrolls. The bond and mortgage markets would prefer to see a smaller increase.
Also early Wednesday will be the 2nd Quarter Employment Cost Index (ECI) that tracks employer costs for wages and benefits. This release will give us a measurement of wage-inflation. If it shows a large increase, we may see 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 shoppers. A smaller than expected increase would be good news for the bond market and mortgage pricing. Current forecasts are showing a rise of 0.6%.
Wednesday afternoon has the adjournment of the FOMC meeting that begins Tuesday. All meetings are now followed by a press conference with Fed Chair Powell, but this meeting does not include revised economic projections. There is much debate about what the Fed will do at this meeting. There has been a growing call for them to make a rate cut at this meeting, not an increase. There is a wide consensus amongst analysts that the Fed will make two rate cuts this year, but there is debate whether the first will come at this meeting. Even within the group that is expecting a move this week there is still debate about the size of the move they will make. Some are predicting a quarter point while others are calling for a half-point rate cut. The meeting will adjourn at 2:00 PM ET, so any reaction will come during mid-afternoon hours. It is safe to say that Wednesday afternoon is going to be quite active.
The FOMC meeting doesn’t conclude the week’s important events. In fact, we have a couple more things scheduled after that are likely to highly influence the markets and mortgage rates. The Institute for Supply Management (ISM) will give us one of those when they release their manufacturing index for July at 10:00 AM ET Thursday morning. This index measures manufacturer sentiment by surveying trade executives about business conditions during the month and is considered to be of high importance to the markets. A reading above 50.0 means that more surveyed executives felt that business improved last month than those who said it had worsened. Analysts are expecting to see a slight increase from June's 51.7. Forecasts are calling for a reading of 51.9, meaning manufacturer sentiment was nearly unchanged last month. Favorable news for bonds and mortgage rates would be a noticeably weaker reading because waning manufacturing strength makes broader economic growth less likely.
Friday brings us the almighty monthly Employment report at 8:30 AM ET. This report gives us the U.S. unemployment rate, number of jobs added or lost during the month and average hourly earnings for July. The best scenario for the bond market is rising unemployment, a sizable loss of jobs and little change in earnings. Friday's report is expected to show that the unemployment rate inched lower last month 0.1% to 3.6% while approximately 158,000 jobs were added to the economy and earnings rose 0.3%. Due to the importance of these readings, we will most likely see quite a bit of volatility in the markets and mortgage pricing Friday morning following their 8:30 AM ET posting.
Closing out the week’s calendar will be two 10:00 AM ET releases. June's Factory Orders data helps us measure manufacturing sector strength by tracking orders for both durable and non-durable goods during the month of June. It is similar to last week's Durable Goods Orders report that tracked orders for big-ticket items only. Since a significant portion of the data was released last week and it follows a major release, this report likely will not have a big impact on the markets. Analysts are expecting to see a rise in new orders of approximately 0.8%. A much smaller than expected increase would be considered good news for bonds and mortgage pricing, but it will take a large variance from forecasts for this report to heavily influence mortgage rates.
July's University of Michigan Index of Consumer Sentiment will also be posted late Friday morning. This is another consumer optimism reading about their own financial situations. This data is considered relevant because rising consumer confidence usually translates into higher levels of spending that adds fuel to economic growth that makes bonds less appealing to investors. Friday's release is an update to the preliminary reading we saw two weeks ago, so unless we see a drastic revision to the preliminary estimate of 98.4, I think the markets will probably shrug off this news.
Overall, we have seen the benchmark 10-year Treasury Note yield move between 2.02% and 2.09% recently. This week’s events carry more than enough punch to break it out of that range. Since mortgage rates tend to track bond yields, we would prefer to see weak data that pushes yields and mortgage rates lower. Wednesday and Friday are clearly the key days of the week with uncertainty surrounding the FOMC meeting and the importance of the monthly Employment report. However, we could see a noticeable move in rates multiple days due to the number of releases and the significance that some of them carry. The least active for rates may tomorrow or possibly Tuesday. There is a very strong possibility of seeing plenty of volatility in the financial and mortgage markets this week. Therefore, it would be prudent to watch the markets if still floating an interest rate and closing in the near future.