This week brings us the release of six economic reports to be concerned with in addition to some very important testimony from Fed Chairman Bernanke.The week’s first piece of data is January’s Durable Goods Orders data early Tuesday morning. It gives us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. A larger decline than the 1.3% that is expected would be good news for the bond market and mortgage rates as it would point towards manufacturing sector weakness. This data is known to be quite volatile from month-to-month, so large swings are fairly normal. A small variance from forecasts would not be a big deal.
Tuesday also brings us the release of February’s Consumer Confidence Index (CCI) during late morning trading. This Conference Board index measures consumer confidence in their personal financial situations, giving us a measurement of consumer willingness to spend. If consumers are feeling good about their own financial situations, they are more apt to make large purchases in the near future. Since consumer spending makes up over two-thirds of the economy, related data is considered important in terms of gauging economic activity. It is expected to show an increase in confidence from 61.1 in January to 62.5 this month. A lower reading would be considered good news for bonds and mortgage rates since it would indicate consumers are less likely to make a large purchase in the near future.
The first of two revisions to the 4th Quarter GDP reading is scheduled for release Wednesday morning. Analysts’ forecasts currently call for an annual rate of growth of 2.8%, matching the initial estimate that was posted last month. It will be interesting to see where this figure falls and what its impact on the markets will be. Generally speaking, higher levels of activity are bad news for the bond market, while a sizable downward revision would be good news and could lead to improvements in mortgage pricing.
Fed Chairman Bernanke will deliver the Fed’s semi-annual testimony on the status of the economy late Wednesday and Thursday mornings. He will be speaking to the House Financial Services Committee Wednesday and the Senate Banking Committee Thursday morning. Market participants will watch his words very closely. He is required to deliver this testimony twice a year, which is considered to be of extreme importance to the financial markets. We almost always see the markets move as a result of what he says during this testimony. Look for him to address the unemployment and housing sectors along with Europe’s financial issues specifically and their impact on the overall economy. His testimony begins at 10:00 AM ET with a prepared statement then is followed by Q & A with committee members. I am expecting to see the markets fluctuate during this session, possibly affecting mortgage rates also.
The Fed Beige Book is the next report scheduled for release and it will be posted Wednesday afternoon. This report details economic activity throughout the country by Fed region. The Fed relies heavily on this data during their FOMC meetings, so look for a potential reaction during afternoon trading Wednesday. It probably will not cause a major sell off in the stock or bond markets, partly because Mr. Bernanke will have access to this info when testifying to Congress. However, it could give us some finer details that we won’t hear directly from Chairman Bernanke, so it is worth looking at.
January’s Personal Income and Outlays data will be released at 8:30 AM ET Thursday, which gives us an indication of consumer ability to spend and current spending habits. Current forecasts call for an increase in income of 0.4% while spending is expected to rise 0.3%. A larger than expected increase in spending would be bad news for the bond market and could drive mortgage rates higher because it would mean consumers spent more than thought. Since consumer spending makes up over two-thirds of the U.S. economy, the bond market does better when spending is slowing. Good news would be a smaller than expected increase, or better yet, a decline in both readings.
The Institute for Supply Management (ISM) will release their manufacturing index for February late Thursday morning. This index measures manufacturer sentiment and can have a pretty large impact on the financial and mortgage markets if it varies from forecasts. It is expected to show a small increase from January’s 54.1 to 54.5 this month. This is important because a reading above 50.0 means more surveyed manufacturers felt business improved during the month than those who felt it had worsened, meaning growth is likely in the manufacturing sector. If we see a weaker than expected reading, the bond market could rally. But, a higher than forecasted reading could lead to major selling in bonds, causing mortgage rates to rise Thursday morning.
Overall, look for a pretty active week for mortgage rates. Wednesday will likely be the biggest day of the week, but Tuesday may also bring noticeable movement in mortgage rates. The least important day will probably end up being today or Friday unless stocks stage a significant rally or sell-off. However, we may see movement in rates several days this week, so please maintain contact with your mortgage professional if still floating an interest rate.
