This week brings us the release of eight economic reports that may affect mortgage rates in addition to a two-day FOMC meeting. Three of the week’s reports are considered to be extremely important to the financial and mortgage markets and can cause a great deal of volatility. Throw in the FOMC meeting and we have the makings of a highly important week, not only for mortgage rates but also for the broader financial markets.
There is nothing scheduled for Monday that is likely to move rates. April’s Consumer Confidence Index (CCI) will kick-off the week’s schedule of events at 10:00 AM ET Tuesday. This index is considered to be an indicator of future spending by consumers. The Conference Board surveys 5,000 consumers from across the country about their personal financial situations. If sentiment is strong or rising, it is believed that consumers are more apt to make large purchases in the near future. However, if they are concerned about issues such as job security and savings, they will probably delay making large purchases. The latter is better for the bond market and mortgage rates because the expected slowdown in spending would keep inflation and economic growth to a minimum. On the other hand, a sizable increase could hurt the bond market, pushing mortgage rates higher Tuesday. It is expected to show a reading of 83.6, which would be an increase from March’s 82.3 reading. The lower the reading, the better the news it is for mortgage rates.
Wednesday has four things taking place that are worth watching. The ADP Employment report is set for release early Wednesday morning, which 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 of the company’s clients that use them for payroll processing. 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 usually follows a couple days later. Still, because we sometimes see a noticeable reaction to the report, it is on this week’s calendar.
Next up is the first of this week’s three key pieces of economic data. That would be the preliminary version of the 1st Quarter Gross Domestic Product (GDP). This is arguably the single most important report that we see on a regular basis. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measure of economic growth or contraction. I expect this report to cause sizable movement in the financial markets Wednesday and therefore the mortgage market also. Analysts are expecting it to show that the economy grew at an annual rate of 1.0% during the first three months of this year. That would be a much slower pace than the 2.6% pace of the final quarter of last year. A smaller increase or a decline would be considered good news for mortgage rates. But a stronger than expected reading would almost certainly cause stock prices to rise and bond prices to fall, leading to higher mortgage rates Wednesday morning.
Also early Wednesday but not nearly as important is the 1st Quarter Employment Cost Index (ECI). This index tracks employer costs for wages and benefits, giving us a measurement of wage-inflation. If it shows a large increase, we may see wage inflation concerns rise as employers will need to pass those increases into the pricing of their products and services. That would cause the bond market to fall and mortgage rates to rise. A smaller than expected increase would be good news for the bond market and mortgage pricing although I doubt this report will affect mortgage rates due to the significance of the GDP data. Current forecasts are showing a rise of 0.5%.
Lastly, this week’s FOMC meeting will begin Tuesday and adjourn Wednesday afternoon. It will likely adjourn with an announcement of no change to key short-term interest rates, but we may see some volatility in the markets following the post-meeting statement. If the statement gives any hint of change in their current forecasts on when they expect to adjust key short-term interest rates, we could see a sizable change to mortgage rates Wednesday afternoon.
March’s Personal Income and Outlays data will be posted early Thursday morning. It helps us measure consumers’ ability to spend and current spending habits. That information is important to the mortgage market due to the influence that consumer spending-related data has on the financial markets. If a consumer’s income is rising, they have the ability to make additional purchases in the near future, fueling economic growth. This raises inflation concerns and has a negative impact on the bond market and mortgage rates. Current forecasts are calling for a 0.4% increase in the income reading and a 0.6% rise in spending. If we see smaller than expected readings, the bond market should open higher Thursday morning.
The Institute for Supply Management (ISM) will post their manufacturing index for April late Thursday morning in the second highly important report of the week. This is usually the first important economic report released each month and gives us an indication of manufacturer sentiment. A reading above 50 means that more surveyed trade executives felt business improved during the month than those who felt it had worsened. This points toward more manufacturing activity and could hurt bond prices, pushing mortgage rates higher. Analysts are expecting to see a reading of 54.5, up from March’s 53.7. Ideally, bond traders would like to see a reading below 50.0 as it would hint at contraction in the manufacturing sector rather than growth, but a decline from March’s level would be good news for mortgage shoppers.
Friday has the remaining two reports, one of which is the almighty monthly Employment report, giving us April’s employment statistics. This is where we may see a huge rally or major sell-off in the bond market and potentially large changes in mortgage rates. The ideal situation for the bond and mortgage markets would be an increase in the unemployment rate and a much smaller number of payrolls added to the economy during the month than was expected. Just how much of an improvement or worsening in rates depends on how much variance there is between forecasts and actual readings. This could turn out to be a wonderful day in the mortgage market, but it also carries risks of seeing mortgage rates move higher if the Labor Department posts stronger than expected readings. Current forecasts are calling for the unemployment rate to slip from 6.7% to 6.6% and that approximately 210,000 jobs were added during the month.
March’s Factory Orders data will close the week’s schedule late Friday morning. This report will give another measurement of manufacturing sector strength or weakness. It is similar to last week’s Durable Goods Orders, except this report includes non-durable goods such as food and clothing. Generally, the market is more concerned with the durable goods orders like refrigerators and electronics than items such as cigarettes and toothpaste. This is why the Durable Goods report usually has more of an impact on the financial markets than the Factory Orders report does. Forecasts are showing a 1.6% increase in new orders. However, the employment data will draw much more attention than this data will, limiting its impact on Friday’s morning rates.
Overall, Friday is the best candidate for most important day of the week although we could see plenty of movement in the markets and mortgage rates several days and at least one afternoon, particularly Wednesday. The calmest day will probably be Monday as investors and market participants prepare for the week’s onslaught of data and Fed news. There is a very good chance of seeing mortgage rates make a significant move one direction or the other, so please maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.