May 29th, 2012
This holiday-shortened week brings us the release of five important economic reports for the markets to digest. Two of the five are considered to be of very high importance to the bond market and mortgage rates. The remaining reports are considered to be of moderate importance to the markets, but still may influence mortgage pricing.
The Conference Board will start the week’s relevant releases by posting their Consumer Confidence Index (CCI) at 10:00 AM Tuesday. This data measures consumer willingness to spend. If the index rises, it indicates that consumers felt better about their personal financial situations and therefore are more apt to make large purchases in the near future. If confidence is sliding, analysts think consumer spending may slow in the near future. The latter is good news for the bond market because consumer spending makes up over two-thirds of the U.S. economy. A decline in the index should boost bond prices and push mortgage rates lower Tuesday morning. It is expected to show a reading of 69.0, down slightly from April’s 69.2 reading.
Wednesday has nothing scheduled that is expected to affect mortgage rates. The next report will be Thursday’s release of the first of two revisions to the 1st quarter Gross Domestic Product (GDP) at 8:30 AM ET. The second revision to this index comes next month but isn’t expected to carry much importance. The GDP is the sum of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth. Last month’s preliminary reading revealed a 2.2% increase in the annual rate of growth. Analysts expect a downward revision to this reading with the consensus being a 1.9% rate of growth. If the revision comes in much stronger than expected, we may see the bond market react negatively and mortgage rates move higher because it would mean the economy was stronger than thought last quarter. On the other hand, a much weaker reading could lead to stock selling, a bond rally and lower mortgage rates.
Friday has the remaining three pieces of economic data, including the two highly important ones. April’s Personal Income and Outlays data is the least important of the three. It will be posted at 8:30 AM and gives us an indication of consumer ability to spend and current spending habits. An increase in income means that consumers have more money available to spend. As we pointed out above, since consumer spending makes up over two-thirds of our economy, this data can cause movement in the financial markets and mortgage rates. Current forecasts are showing a 0.3% increase in income and a 0.3% rise in spending. Weaker readings would be considered good news for bonds and mortgage rates.
Friday’s second report is arguably the single most important report that we see each month. The Labor Department will post May’s Employment data at 8:30 AM ET Friday morning. This report gives us key employment readings such as the U.S. unemployment rate and the number of jobs added or lost during the month. Analysts are expecting to see the unemployment rate remain at 8.1% this month with approximately 155,000 jobs added to the economy during the month. A higher than expected unemployment rate and a much smaller number than 155,000 in new payrolls 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, indicating employment sector strength, may lead to a spike in rates Friday morning.
The Institute for Supply Management’s (ISM) manufacturing index will conclude the week’s data late Friday morning. This highly important index measures manufacturer sentiment. A reading above 50 means that more surveyed manufacturing executives felt that business improved during the month than those who felt it had worsened, pointing towards sector strength. Analysts are expecting to see a 54.0 reading in this month’s release, down from April’s 54.8, meaning that sentiment fell during May. A smaller reading will be good news for the bond market and mortgage shoppers while an unexpected increase could contribute to higher mortgage rates Friday.
Overall, Friday is likely to be the most important day of the week as it brings us the two most important reports on the agenda and three overall. If they give us weaker than expected results, we could close the week with lower mortgage rates than Tuesday’s opening levels.
However, if we see stronger than expected readings in those two releases, I expect mortgage rates to move higher on the week. But that is very much dependent on seeing a relatively calm week in stocks. As we have seen recently, stock market volatility can heavily influence bond trading and mortgage rates and significantly minimize the impact that these economic reports normally have on rates. Accordingly, it would be wise to maintain contact with your mortgage professional if still floating an interest rate.