This week brings us the release of seven pieces of economic data that are relevant to the bond market and mortgage pricing. There is no relevant data scheduled for release Monday, so look for the stock markets to drive bond trading and mortgage rates. There is data scheduled for every other day with most of the reports coming the latter part of the week but the key releases are set for the middle days. This means that the week may start off slow, however, we are likely to see plenty of movement in mortgage rates as the week progresses.
July’s Retail Sales data early Tuesday morning is the first and one of the highly important reports scheduled this week. This data is very important to the financial and mortgage markets because it helps us measure consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, any data related to it can cause a fair amount of movement in the markets. A smaller than expected increase would indicate that consumers are spending less than previously thought, pointing towards slower economic growth. This is good news for the bond market and mortgage rates as it eases inflation concerns and makes long-term securities such as mortgage-related bonds more attractive to investors. Current forecasts are calling for an increase of 0.2% in retail-level sales. Ideally, the bond market would like to see a decline in sales although no change from June would be construed as favorable.
One of the week’s key inflation indexes will be Wednesday’s only relevant data. July’s Producer Price Index (PPI) will give us an indication of inflationary pressures at the producer level of the economy at 8:30 AM ET. There are two readings in the report- the overall index and the core data reading. The core data is more important because it excludes more volatile food and energy prices that can change significantly from month to month. Current forecasts call for a 0.3% rise in the overall reading and a 0.2% increase in the core data. A larger increase in the core data could push mortgage rates higher Wednesday morning. If it reveals weaker than expected readings, we may see bond prices rise and mortgage rates improve as a result.
The PPI will be followed by the even more important Consumer Price Index (CPI) early Thursday morning. The Consumer Price Index is one of the most important reports we see each month as it measures inflation at the consumer level of the economy. As with the PPI, there are also two readings in the report. Analysts were expecting to see a 0.2% increase in the overall index and a 0.2% rise in the core data reading. Declines in the readings, especially in the core data, should lead to lower mortgage rates since it would mean inflation is still not a threat to the economy. On the other hand, stronger than expected readings will likely lead to an increase in mortgage pricing Thursday
July’s Industrial Production is Thursday’s second report with a release time of 9:15 AM ET. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be moderately important to the markets and can influence mortgage rates slightly. Expectations are for a 0.4% increase in production, indicating some strength in the manufacturing sector. Good news for the bond market and mortgage rates would be a decline in output, signaling sector weakness. However, the CPI report will draw the most attention Thursday.
Friday has the remaining three pieces of data scheduled, but none are considered to be highly important to mortgage rates. July’s Housing Starts is the first at 8:30 AM ET, which will give us an indication 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 and is expected to show a fairly sizable increase in construction starts of new homes. The lower the number of starts, the better the news for the bond market, as it would indicate a weaker than expected housing sector.
Employee Productivity and Costs data for the second quarter will also be posted early Friday morning. It will give us an indication of employee output per hour. 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 either, but it may influence rates slightly during morning trading. Analysts have predicted no change in productivity during the second quarter and a 0.3% decline in labor costs. A sizable increase in productivity reading and a larger than expected drop in costs could help improve bonds, contributing to lower mortgage rates Friday.
The final report of the week will come from the University of Michigan, who will release their Index of Consumer Sentiment for August at 9:55 AM Friday. This index gives us a measurement of consumer willingness to spend. If confidence is rising, then consumers are more apt to make large purchases, helping fuel economic growth. By theory, a drop in confidence should boost bond prices, but this data is considered moderately important and carries much less significance than some of the week’s other reports. Analysts are expecting to see a reading of 85.3, which would be a slight increase from July’s final reading of 85.1. The smaller the reading, the more concerned consumers are in their own financial situations and the better the news for mortgage rates.
Overall, I am expecting Tuesday or Thursday to be the most important days of the week. Tuesday’s Retail Sales report and Thursday’s CPI are the two single most influential reports scheduled over the next five days. Since Tuesday has the Retail Sales data and consumer level inflation is not expected to be an immediate threat, I am leaning towards it as the day that we will see the most movement in mortgage rates. I am expecting to see the least movement Monday, unless the stock markets stage a significant rally or sell-off. With so much going on this week, I strongly recommend maintaining contact with your mortgage professional if still floating an interest rate.