This week brings us the release of six pieces of monthly and quarterly economic reports with two being considered highly important. There is nothing of relevance to mortgage rates scheduled for release tomorrow, so look for the stock markets to drive bond trading and mortgage rates until we get to the data.
July's Consumer Price Index (CPI) will start the week’s activities early Tuesday morning. The CPI is the sister release to last week’s PPI and is one of the more important reports we see each month because it measures inflation at the consumer level of the economy. There are two readings in the report that are watched. Analysts are expecting to see a 0.3% rise in the overall reading and a 0.2% increase in the more important core data that excludes volatile food and energy prices. Declines in the readings should lead to lower mortgage rates since it would mean inflationary pressures at the consumer level of the economy remain subdued. Rising inflation makes mortgage bonds less appealing to investors and forces the Fed to be more aggressive with key rate increases.
Thursday has three of the week’s reports scheduled. The first of them will be July's Retail Sales data at 8:30 AM ET. This highly important release comes from the Commerce Department and will give us a measurement of consumer spending. Consumer level spending figures are extremely relevant to the markets because it makes up over two-thirds of the U.S. economy. Current forecasts are calling for a 0.3% increase in sales. Analysts are also calling for a 0.4% rise in sales if more volatile and costly auto transactions are excluded. Larger than expected increases would be considered bad news for bonds and likely lead to an increase in mortgage pricing since it would indicate stronger economic growth. Ideally, we will see a smaller increase that will lead to lower rates.
Employee Productivity and Costs data for the second quarter will also be released early Thursday morning. It helps us track employee output per hour worked. High levels of productivity are believed to allow the economy to grow without fears of inflation. I don't see this being a big mover of mortgage rates, but it may influence them slightly during morning trading if the sales data is a dud. Analysts have predicted a 1.3% rise in productivity during the second quarter and a 1.6% increase in labor costs. A sizable increase in productivity and a smaller than expected rise in costs would be favorable news for bonds.
The third release of the day will be July's Industrial Production report at 9:15 AM ET that measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.1% increase from June's level. A decline would be considered good news for bonds and mortgage rates because it would show manufacturing sector weakness and broader economic growth would be more difficult if manufacturing activity is slipping.
Friday closes the week with two more economic releases that we will be watching. July's Housing Starts will come at 8:30 AM ET, giving us an idea of housing sector strength and future mortgage credit demand. It usually doesn't cause much movement in mortgage rates unless it varies greatly from forecasts. Friday's release is expected to show a decline in construction starts of new homes last month. The lower the number of starts, the better the news for the bond market, as it would hint at a weaker than expected new home portion of the housing sector.
The last release of the week will come from the University of Michigan late Friday morning. Their Index of Consumer Sentiment for August will give us an indication of consumer confidence, which projects consumer willingness to spend. If a consumer's confidence in their own financial and employment situation is rising, they are more apt to make large purchases in the near future. But, if they are growing more concerned about their job security or finances, they probably will delay making that large purchase. This influences future consumer spending data and therefore, impacts the financial markets. It is expected to show a reading of 97.7 that would mean confidence was softer this month than July's level of 98.4 and that surveyed consumers are less likely to make a large purchase. Good news for mortgage rates would be a sizable decline.
Overall, Thursday is likely to be the most active day for mortgage rates due to the Retail Sales data being posted in addition to a couple other reports. Tuesday also could be active due to the CPI release. Wednesday is the best candidate for least important day. We could see some movement in rates any day this week, so please proceed cautiously if still floating an interest rate as this bond rally could reverse course without notice.