MARKET COMMENT Mortgage bond prices rose last week, which pushed mortgage interest rates lower. Rates started off on a bad note Monday as the lack of a debt deal between Congress and the President dominated the headlines. The Treasury auctions generally saw weak foreign demand, which also didn’t help rates. Stocks struggled throughout the week. Fortunately mortgage bonds rallied heavily Friday as the Advance Q2 GDP figure disappointed with only a 1.3% increase. Analysts looked for GDP to rise 1.8%. Mortgage bonds ended the week better by about 3/4 of a discount point.
The employment report Friday will be the most important data this week. Any developments regarding the US debt ceiling will likely result in market volatility.
• ISM Index; Aug. 1; Consensus Estimate 52.0; Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
• Construction Spending; Aug. 1; Consensus Estimate Up 0.1%; Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
• Personal Income and Outlays; Aug. 2; Consensus Estimate Unchanged, Up 0.1%; Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
• PCE Core Inflation; Aug. 2; Consensus Estimate Up 0.2%; Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve.
• ADP Employment; Aug. 3; Consensus Estimate 80k; Important. An indication of employment. Weakness may bring lower rates.
• Factory Orders; Aug. 3; Consensus Estimate Down 1.5%; Important. A measure of manufacturing sector strength. A larger decrease may lead to lower rates.
• Weekly Jobless Claims; Aug. 4; Consensus Estimate 395k; Important. An indication of employment. Higher claims may result in lower rates.
• Employment; Aug. 5; Consensus Estimate 9.2%, Payrolls +85k; Very important. An increase in unemployment or weakness in payrolls may bring lower rates.
EMPLOYMENT The employment report provides an abundance of information for almost every sector of the economy. Not only does the employment report give basic employment payroll statistics for the major working sectors, it also provides the average hourly earnings and the average workweek. Using this information provided by the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor, economists estimate many other economic indicators such as industrial production, personal income, housing starts, and GDP monthly revisions. Since there is little data for economists to base their estimates on, the margin of error for the estimates tends to be high. As a result, the employment report can cause substantial market movements.
The BLS compiles data from two unrelated surveys that they conduct, the household survey and the establishment survey, in order to complete the employment report. This explains why sometimes there is an unexpected divergence between the unemployment rate and payrolls figures each month.
This week’s employment data will provide valuable insight into factors the Federal Open Market Committee will use to make future rate decisions. If employment remains weak the Fed may seriously consider keeping rates low.
Source: Todd Kabel, F& M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee