September 2nd, 2008 8:47 AM by Lehel Szucs
There are five relevant economic reports scheduled for release this week, but they are being posted over four days because the markets were closed today in observance of the Labor Day holiday.
The first piece of data this week comes tomorrow morning with the release of the Institute for Supply Management's (ISM) manufacturing index at 10:00 AM ET. This index measures manufacturer sentiment and is expected to show a decline from last month's reading of 50.0 to 49.5 in August. A reading above 50 means that more surveyed manufacturers felt business improved during the month than those who felt it worsened. An increase in the index would probably cause a rally in the stock markets and lead to mortgage rates rising tomorrow, while a reading below 49.5 should lead to lower rates.
The second report of the week is July's Factory Orders data Wednesday morning. This report measures manufacturing sector strength and is similar to last wee k's Durable Goods Orders, but includes orders for both durable and non-durable goods. This data is expected to show a 0.4% increase in new orders. A smaller than expected rise should lead to lower mortgage rates Wednesday.
Also scheduled for release is the Wednesday afternoon Federal Reserve release of its Beige Book report. This report details current economic conditions in the U.S. by region. It is believed to be a key source of data when the Fed meets for their FOMC meetings. It is usually released approximately two weeks prior to each FOMC meeting. If the 2:00 PM ET release reveals any significant surprises, we may see movement in the markets and mortgage pricing as analysts adjust their theories on the Fed's next interest rate move. Most likely though, it will be a non-event and will not lead to a change in mortgage rates.
Thursday morning brings us the revision to the 2nd Quarter Productivity numbers, which measures employee productivity in the wo rkplace. It is expected to show an upward change from the previous estimate of a 2.2% annual pace. Forecasts are currently calling for a reading of 2.9%, which would be good news for the bond market and possibly lead to slightly lower mortgage rates Thursday morning.
The big news of the week comes Friday morning. The Labor Department will post the unemployment rate, number of new jobs added or lost and average hourly earnings for August early Friday. The ideal scenario for the bond market and mortgage rates is rising unemployment, a smaller than expected rise in new payrolls and earnings to remain unchanged. If we are that fortunate, I expect to see mortgage rates drop considerably Friday morning. Analysts are expecting to see the unemployment rate remain at 5.7% and 70,000 jobs lost in the month. Weaker then expected readings would be very good news for bonds and mortgage rates.
Overall, I expect to see the most movement in rates Friday, but Tuesday s hould also be fairly active. I am holding the short-term lock recommendations for the time being as there still seems to be plenty of profit taking opportunities for traders if they choose to do so. This could lead to a spike in mortgage rates if traders sell holdings to capture those gains. This does not mean that I think rates will necessarily move higher. It means that I feel the risk versus the potential reward of continuing to float an interest rate is leaning heavily towards the risky side. Accordingly, locking seems to be the prudent position at this time.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot b e guaranteed to be in the best interest of all/any other borrowers.
©Mortgage Commentary 2008