This week brings us seven monthly and quarterly economic reports for the markets to digest. Three of those reports are considered to be significantly important to the markets. In addition to the data, we also have another FOMC meeting that there is much debate about. All four of those events come over only two days, meaning we should see sizable movement in rates a couple days this week. Tomorrow is the only day of the week that has nothing scheduled.
October's Consumer Confidence Index (CCI) will start the week’s activities late Tuesday morning. This Conference Board index gives us a measurement of consumer willingness to spend. It is expected to show an increase in confidence from last month's 125.1 reading. That would mean surveyed consumers were more optimistic about their own financial and employment situations than they were last month, indicating they are more likely to make a large purchase in the near future. That would be unfavorable news for the bond market because consumer spending makes up over two-thirds of our economy. Current forecasts are showing a reading of 128.0. The lower the reading, the better the news it is for mortgage rates.
Wednesday has two morning economic reports to watch, one of which is considered a key piece of data. The first and less important is the 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 than expected. This report tracks changes in private-sector jobs, using ADP's 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 accurate in predicting results of the monthly government report that follows a couple days later. Still, because we often see a reaction to the report, we should be watching it. Analysts are expecting it to show that 125,000 new payrolls were added. Good news for rates would be a lower number of jobs.
Report two of the day and the first major event of the week will be the preliminary reading of the 3rd Quarter Gross Domestic Product (GDP) at 8:30 AM ET Tuesday. The GDP is considered to be the benchmark measurement of economic growth because it is the total of all goods and services produced in the U.S. and therefore is likely to have a big impact on the financial markets and mortgage pricing. There are three versions of this report, each a month apart. Wednesday's release is the first and usually has the biggest influence on the markets. Current forecasts call for the GDP to grow at an annual rate of 1.6%, meaning that the economy grew at a slower pace than the 2nd quarter's 2.0% rate. If this report shows a much smaller increase, I am expecting to see the bond market rally and mortgage rates fall. However, a larger than expected rise could lead to a rally in stocks, bond selling and a noticeable increase in mortgage pricing.
This week's FOMC meeting is a two-day meeting that begins Tuesday and adjourns Wednesday afternoon. Many analysts believe the Fed will make another quarter point rate cut at this meeting, but not everyone agrees. Some feel the Fed will wait for more data and possibly make a move at December’s meeting. Market participants will also be looking for any indication from this meeting about the plans for the rest of this year and 2020. It will not be accompanied by economic projections but a press conference with Fed Chairman Powell follows all meetings now. The meeting will adjourn at 2:00 PM ET while the press conference will start at 2:30 PM, making these mid-afternoon events for the markets.
September's Personal Income and Outlays report comes Thursday morning at 8:30 AM ET. This data gives us an indication of consumer ability to spend and current spending habits. There also is an inflation reading in the data that the Fed relies on. This report is important to the markets because consumer spending makes up such a large part of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is bad news for the bond market and mortgage rates because it raises inflation concerns that make long-term securities, such as mortgage-related bonds, less attractive to investors. Analysts are expecting to see a 0.3% increase in income and a 0.2% rise in spending. Smaller than expected increases in both readings would be good news for the bond market and mortgage pricing.
The 3rd Quarter Employment Cost Index (ECI) will also be released early Thursday. This data tracks employer costs for salaries and benefits, giving us an indication of wage inflation pressures. Rapidly rising costs raises wage inflation concerns and may hurt bond prices. It is expected to show an increase in costs of 0.7%. A smaller than expected increase would be good news for mortgage rates, but this is not one of the more important reports of the week.
Friday morning has two extremely important economic reports being released. The day starts with the release of the almighty Employment report for October at 8:30 AM ET. The report is comprised of many statistics and readings, but the most important ones are the unemployment rate, the number of new jobs added or lost during the month and average hourly earnings. Current forecasts call for the unemployment rate to rise from 3.5% to 3.6%. It is also expected to show an increase in payrolls of 100,000. The third headline number is average earnings that is forecasted to reveal a 0.2% rise. Weaker than expected readings should raise more concerns about the labor market and rally bonds enough to improve mortgage rates noticeably, especially if the stock markets react poorly to the news. Stronger than predicted numbers would put in question if the economy is slowing as much as feared, which would be bad news for mortgage pricing.
The second very important report of the day and final report of the week will be the Institute for Supply Management's (ISM) manufacturing index for October at 10:00 AM ET. This index measures manufacturer sentiment. It is important because it gives us an indication of manufacturing sector strength. Friday's release is expected to show a reading of 47.8, indicating that manufacturer sentiment slipped from September's level 59.8. This means fewer surveyed manufacturing executives felt business improved during the month than in September, hinting at weaker manufacturing sector activity. A smaller than expected reading would be good news for bonds and likely lead to lower mortgage rates Thursday.
Overall, it is a toss up whether Wednesday or Friday is the most important day of the week. Wednesday could be it if the GDP or FOMC meeting bring any surprises. Both carry the potential to heavily move the markets but sometimes have a minimal impact. Friday’s two reports usually are influential also. The calmest day may be tomorrow although we could still see a move in rates. This is likely going to be a very active week for the financial and mortgage markets. Therefore, proceed cautiously if still floating an interest rate and closing in the near future.