Jobs in Focus in the Week Ahead
Posted 08-02-2010 at 08:26 AM by VictorBurek
Last week ended with mortgage rates improving to all time new lows showing us the “flight to safety” bid is still in effect. A flight to safety happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate their money into risk-free U.S Treasury debt to provide a safe-haven AND an investment return. To remind readers, as benchmark Treasury yields fall, prices of mortgage-backed securities move higher, which allows lenders to offer lower mortgage rates. As Treasury yields rise, mortgage-backed security prices are led lower, which forces lenders to increase mortgage rates. The reasoning behind the “flight to safety” is our and the global economic outlook remains quite uncertain.
This morning we received two pieces of economic data, one on the strength of the manufacturing sector of our economy and the other on the health of the construction industry.
The Institute for Supply Management released their monthly ISM Manufacturing Index. This report is based on a survey of more than 300 manufacturing firms and reports on their feedback of business conditions. Readings above 50 indicate economic expansion or improving conditions while readings below 50 indicate economic contraction or deteriorating conditions. The ISM index has held above 50 for the last eleven months with the read last month coming in at a lower than expected 56.2. This index peaked in April and has moved lower each month since indicating that manufacturing conditions are cooling. Economists’ surveyed prior to today’s report expect conditions to continue the recent trend easing down to a 54.0. The report indicated manufacturing conditions slipped last month but not as much as expected coming in at 55.5; however, it is the lowest reading of 2010!
Our final report on the day was Construction Spending. This data shows the monthly change in the amount of money spent on construction for public and private residential and non residential projects. Increasing construction spending is a positive economic indicator as it could lead to additional job creation and increased consumer spending on items needed to complete construction projects. This report has a two month lag so it generally does not affect the market.
Construction spending during June rose 0.1%, much better than the -0.5% decline that was expected. Offsetting the positive news was the fact that most of the gain was due to government spending and not private spending. Private residential spending fell 0.8% indicating the ever so important housing sector remains troubled. Additionally, May’s number was revised much worse from the first reported dip of 0.2% to a much larger decline of 1.0%.
The stock market opened this morning much higher and is holding onto the gains after the data was released. This early morning strength in stocks is pulling money away from the bond market which will result in worsened rate sheets from Friday.
Here is a look at what could impact mortgage rates in the week ahead:
Tuesday
- Personal Income and Outlays (high impact) This monthly report provides market watchers with a view into the strength of consumers by tracking what Americans earn and what they spend. A stronger consumer benefits the stock market while a weaker consumer helps keep mortgage rates low.
- Factory Orders (medium impact)
- Pending Home Sales (medium to high impact) Many believe that until housing picks up without government support, it will be difficult for our economy to grow which makes tracking home sales date more important now than in past times.
Wednesday
- MBA Applications Index(low impact)
- ADP Employment Report(medium impact) This data is not as influential as the official Employment Situation Report but it does provide market participants with a sneak peak of the health of the labor market. The farther away this number is from expectations, the more important it will be to investors.
- Treasury announcement of new supply of debt to be auctioned next week. The new supply will be of 3 year notes, 10 year notes and 30 year bonds.(low impact)
- ISM Non-Manufacturing Index(low impact)
Thursday
- Weekly Jobless Claims(low to medium impact)
Friday
- Employment Situation(HIGH IMPACT) This is the most influential report we receive on a monthly basis. Economists expect the report to show nonfarm payrolls lost 70,000 jobs last month following the prior month’s loss of 125,000. The unemployment rate is expected to climb to 9.6% from 9.5%.
Reports show lenders rate sheets to be slightly worse than the all time best rate sheets we received on Friday. The par 30 year conventional rate mortgage remains in the 4.25% to 4.50% range for well qualified consumers but you will have to pay extra to get the 4.25% rate. The best execution rate remains 4.50%. If you plan on keeping your home for less than three years, you should consider a no cost loan. That means that no closing costs are paid by the consumer or rolled into the new mortgage. Rather the loan originator pays your closing costs for you by securing you a higher interest rate. No cost loans are in the 4.875% to 5.125% range.
Lock or float? Would love to get some opinions from the professionals that read the blog. With rates holding at record levels I find it difficult to recommend floating. If you are within 15 days of closing, I would lock today on 15 days which renders the best pricing.
This morning we received two pieces of economic data, one on the strength of the manufacturing sector of our economy and the other on the health of the construction industry.
The Institute for Supply Management released their monthly ISM Manufacturing Index. This report is based on a survey of more than 300 manufacturing firms and reports on their feedback of business conditions. Readings above 50 indicate economic expansion or improving conditions while readings below 50 indicate economic contraction or deteriorating conditions. The ISM index has held above 50 for the last eleven months with the read last month coming in at a lower than expected 56.2. This index peaked in April and has moved lower each month since indicating that manufacturing conditions are cooling. Economists’ surveyed prior to today’s report expect conditions to continue the recent trend easing down to a 54.0. The report indicated manufacturing conditions slipped last month but not as much as expected coming in at 55.5; however, it is the lowest reading of 2010!
Our final report on the day was Construction Spending. This data shows the monthly change in the amount of money spent on construction for public and private residential and non residential projects. Increasing construction spending is a positive economic indicator as it could lead to additional job creation and increased consumer spending on items needed to complete construction projects. This report has a two month lag so it generally does not affect the market.
Construction spending during June rose 0.1%, much better than the -0.5% decline that was expected. Offsetting the positive news was the fact that most of the gain was due to government spending and not private spending. Private residential spending fell 0.8% indicating the ever so important housing sector remains troubled. Additionally, May’s number was revised much worse from the first reported dip of 0.2% to a much larger decline of 1.0%.
The stock market opened this morning much higher and is holding onto the gains after the data was released. This early morning strength in stocks is pulling money away from the bond market which will result in worsened rate sheets from Friday.
Here is a look at what could impact mortgage rates in the week ahead:
Tuesday
- Personal Income and Outlays (high impact) This monthly report provides market watchers with a view into the strength of consumers by tracking what Americans earn and what they spend. A stronger consumer benefits the stock market while a weaker consumer helps keep mortgage rates low.
- Factory Orders (medium impact)
- Pending Home Sales (medium to high impact) Many believe that until housing picks up without government support, it will be difficult for our economy to grow which makes tracking home sales date more important now than in past times.
Wednesday
- MBA Applications Index(low impact)
- ADP Employment Report(medium impact) This data is not as influential as the official Employment Situation Report but it does provide market participants with a sneak peak of the health of the labor market. The farther away this number is from expectations, the more important it will be to investors.
- Treasury announcement of new supply of debt to be auctioned next week. The new supply will be of 3 year notes, 10 year notes and 30 year bonds.(low impact)
- ISM Non-Manufacturing Index(low impact)
Thursday
- Weekly Jobless Claims(low to medium impact)
Friday
- Employment Situation(HIGH IMPACT) This is the most influential report we receive on a monthly basis. Economists expect the report to show nonfarm payrolls lost 70,000 jobs last month following the prior month’s loss of 125,000. The unemployment rate is expected to climb to 9.6% from 9.5%.
Reports show lenders rate sheets to be slightly worse than the all time best rate sheets we received on Friday. The par 30 year conventional rate mortgage remains in the 4.25% to 4.50% range for well qualified consumers but you will have to pay extra to get the 4.25% rate. The best execution rate remains 4.50%. If you plan on keeping your home for less than three years, you should consider a no cost loan. That means that no closing costs are paid by the consumer or rolled into the new mortgage. Rather the loan originator pays your closing costs for you by securing you a higher interest rate. No cost loans are in the 4.875% to 5.125% range.
Lock or float? Would love to get some opinions from the professionals that read the blog. With rates holding at record levels I find it difficult to recommend floating. If you are within 15 days of closing, I would lock today on 15 days which renders the best pricing.
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