Daily Rate Lock Advisory

Indexes Affecting Rate Lock

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Employment Cost Index (Quarterly)

Starting this week’s activities is the release of the 4th Quarter Employment Cost Index (ECI) at 8:30 AM ET Tuesday. This index measures employer costs for employee wages and benefits, giving us insight into wage inflation pressures. If wages are rising, consumers have more money to spend and businesses usually need to charge more for their products and services. The report is considered moderately important and usually has more of an impact on the bond market than the stock markets. Current forecasts are showing an increase of 1.1%. A reading lower than expected would be favorable to bonds and Tuesday's mortgage rates.

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Consumer Confidence Index

January's Consumer Confidence Index (CCI) is next, coming at 10:00 AM ET Tuesday. The CCI is an indicator of consumer sentiment, which is important because waning confidence in their own financial situations is a sign that consumers are less willing to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, market participants are very attentive to related data. Analysts are expecting to see a slight decline from December's 108.3 reading, indicating consumer confidence was weaker this month than last month. A reading much smaller than the expected 108.1 would be ideal for the bond market and mortgage rates. A higher reading would mean that consumers are more likely to spend in the immediate future, fueling economic growth and possibly pushing mortgage pricing higher Tuesday.

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ADP Employment

Wednesday is likely to be an active day for the financial and mortgage markets. It will begin with January’s ADP Employment report at 8:15 AM ET that tracks changes in private-sector jobs. While it does draw attention, it is my opinion that this non-governmental report is overrated and not a true reflection of the broader employment picture. It also is not accurate in predicting results of the monthly government report that we will get Friday. Still, because we often see a reaction to its results, it is included in this week's calendar. Analysts are expecting to see 165,000 new private jobs were added to the economy. Good news for rates would be a much smaller number.

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ISM Index (Institute for Supply Management)

The Institute of Supply Management (ISM) will post their manufacturing index for January at 10:00 AM ET Wednesday that tracks manufacturer sentiment by using surveyed trade executives' opinions of business conditions. It is usually the first economic data released each month and is one of the very important reports we get monthly. Predictions show a reading of 48.0, which would be a small decline from December's reading of 48.4. A number below 50.0 is a sign of contraction in the sector. Therefore, the lower the reading, the better the news for the bond market and mortgage rates because weaker sentiment indicates a slowing manufacturing sector.

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Federal Open Market Committee (FOMC) Statement

This year's first FOMC meeting will begin Tuesday and adjourn Wednesday at 2:00 PM ET. There is a strong consensus that Fed Chairman Powell and friends will bump key short-term interest rates higher yet again to help bring inflation under control. They are expected to make a quarter-point increase this week, the smallest move since they began raising these rates last March. Traders will be looking at the post-meeting statement for clarification of the Fed's future plans, particularly regarding when they may stop raising short-term rates. Many analysts feel that Chairman Powell and friends will pause the increases after this meeting to see how much of an impact their previous moves have had on inflation. They don’t want to overtighten, contributing to a possible economic recession. A press conference will take place at 2:30 PM, but this meeting does not include revised economic projections. There is a good possibility of seeing afternoon volatility in the markets Wednesday afternoon.

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Productivity and Costs (Quarterly)

In addition to weekly unemployment claims, Employee Productivity and Costs data for the 4th quarter will also be released early Thursday morning. It can cause a change in the bond market but should have a minimal impact on mortgage pricing. If the productivity reading varies greatly from analysts' forecasts of a 2.7% rise, we may see a slight move in mortgage pricing. Higher levels of worker productivity are good news for the bond market because it allows the economy to expand without fueling inflation.

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Factory Orders

December's Factory Orders data is set for release late Thursday morning. It is similar to last week's Durable Goods Orders release in giving us a measurement of manufacturing sector strength, but this data includes new orders for both durable and non-durable goods. It is not one of the more important reports we get each month. However, it can influence mortgage pricing if it varies greatly from forecasts. Traders are expecting a 2.2% rise in new orders, indicating gains in the manufacturing sector. The bond market would like to see a decline, meaning that manufacturing activity was noticeably weaker than many had thought.

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Employment Situation

Friday has the most important data of the week. Actually, it is arguably the most important report we get, period. The Labor Department will release the almighty Employment report for January at 8:30 AM ET. Some of the highly relevant portions of the report will give us the unemployment rate, number of new jobs added or lost and the average hourly earnings change. The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a much smaller increase in payrolls than expected and little or no rise in earnings. Current forecasts are calling for an unemployment rate of 3.6% (up 0.1%) and approximately 190,000 new jobs added to the economy while earnings rose 0.3%. Stronger than expected numbers will likely fuel a stock market rally and selling in bonds that would cause a sizable upward revision to mortgage rates. On the other hand, disappointing numbers should lead to a noticeable improvement in mortgage pricing.

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Corporate Earnings

Besides the economic data and FOMC meeting this week, we also need to watch for movement in stocks. It is still considered corporate earnings season and there are a couple of big-named companies reporting their results this week. Generally speaking, good news for stocks is considered bad news for bonds and mortgage rates. If those earnings reports show disappointing results, stocks should retreat, drawing funds into bonds. This scenario can happen anytime but may be a little more prevalent this week than others.

Overall, Wednesday is the best candidate for most important day of the week due to the ISM Index and FOMC meeting, but the Employment report makes Friday a possibility also. The calmest day will probably be tomorrow unless something unexpected happens. Everything points towards another very active week for the markets and mortgage rates, so please keep an eye on them if still floating an interest rate and closing in the near future.

Rate Lock Advisory

Mortgage Rate Trend

Indexes Affecting Rate Lock

Employment Cost Index (Quarterly)

Consumer Confidence Index

ADP Employment

ISM Index (Institute for Supply Management)

Federal Open Market Committee (FOMC) Statement

Productivity and Costs (Quarterly)

Factory Orders

Employment Situation

Corporate Earnings

Float / Lock Recommendation