MARKET COMMENT Mortgage bond prices rose slightly last week pushing mortgage interest rates lower. The Fed meeting resulted in no interest rate adjustments at this time despite continued talk of inflation fears. The data was mixed. Durable goods orders came in higher than expected pushing rates higher Wednesday morning. Weekly jobless claims came in at 429k, higher than the expected 390k and helped rates recover and rally Thursday. Mortgage bonds ended the week better by about 1/2 of a discount point.
The employment report will be the most important release this week. The weekly jobless claims and ADP data will also shed light on the state of employment.
- ISM Index; May 2; Consensus Estimate 61.1; Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
- Factory Orders; May 3; Consensus Estimate Up 0.1%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
- ADP Employment; May 4; Consensus Estimate 125k; Important. An indication of employment. Weakness may bring lower rates.
- Weekly Jobless Claims; May 5; Consensus Estimate 420k; Important. An indication of employment. Higher claims may result in lower rates.
- Preliminary Q1 Productivity; May 5; Consensus Estimate Up 2.2%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
- Employment; May 6; Consensus Estimate 8.7%, +205k; Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.
- Consumer Credit; May 6; Consensus Estimate $7.5b; Low importance. A significantly large increase may lead to lower mortgage interest rates.
ADP EMPLOYMENT The ADP employment report is a measure of employment derived from data of roughly 500,000 US businesses. The survey focuses on the private sector of the economy. In contrast, the Bureau of Labor Statistics releases the regular employment report which includes both private and government employment statistics.
The ADP employment report has gained more prominence lately in that it is delivered prior to the Friday employment report. This gives analysts an improved forecast heading into the payrolls component of the employment report later in the week.
The Fed is usually focused on keeping inflation in check. Tightening employment conditions can result in wage inflation. The ADP report provides solid data on these conditions. Despite this, the data still can diverge from the regular employment report. The employment report is derived from a household survey and an establishment survey. These surveys often differ from one another and from the ADP employment report in that they are based on different data sets. There are no guarantees that the most important employment report the first Friday of each month will mirror the ADP report released 2 days prior. With this in mind floating into the data is always very risky. Now is a great time to take advantage of mortgage interest rates at these historically favorable levels to avoid future market volatility.