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Mortgage Market/Economic Update for May 29th - June 1st

By Michael Savas

Mortgage and Lending with GMH Mortgage and Century 21 Adams Realty

May 29, 2007 03:43 AM

Good Afternoon,

I hope that everyone had a nice Memorial day weekend.

This week, May 4th-June 1st, is a 4 day week jam packed with the release of seven important economic reports. Four of which are considered to be highly important to the bond market and mortgage/interest rates. I apologize for the delay in this post, but I was fighting traffic all morning on my way back from Cape Cod and wasn't able to post this before below's mentioned report was released.

Already this morning the Consumer Confidence Index (CCI) was released at 10:00 AM Today. This is a very important release that measures consumer willingness to spend. If the index rises, it indicates that consumers feel better about their personal financial situations and are more apt to make large purchases. If confidence is sliding, analysts think consumer spending may slow in the near future. The latter is good news for the bond market because it should ease concerns about inflationary pressures, making bonds more attractive to investors. This should boost bond prices and push mortgage rates lower Tuesday morning. It is expected to show a reading of 104.5 after April's 104.0 reading.

There is no relevant economic news scheduled for release Wednesday, but we will get to see the minutes from the last FOMC meeting. Market participants will be looking for how Fed members voted during the last meeting and any comments about inflation concerns in the economy. The goal is to form a guess about what the Fed's next move will be. The minutes will be released at 2:00 PM ET, so if there is a market reaction to them it will be evident during afternoon trading. (Fed President Ben Bernanke)

The first of two revisions to the 1st quarter Gross Domestic Product (GDP) will be released at 8:30 AM Thursday. The second revision to this report comes next month but isn't expected to have much of an impact on the financial markets. The GDP is the sum of all goods and services produced in the U.S. and is considered to be the best indicator of economic growth. Last month's preliminary reading revealed a 1.3% annual rate of growth, which was much lower than expected and the weakest reading since 2003. Analysts expect a further downward revision to this reading with the consensus being .7%. If true, we may see the bond market react positively and mortgage rates improve.

Friday brings us the release of four pieces of data, including two of the weeks' most important. The first is April's Personal Income and Outlays data at 8:30 AM. This report gives us an indication of consumer ability to spend and current spending habits. An increase in income means that consumers have more money available to spend. Since consumer spending makes up two-thirds of the U.S. economy, this data can cause movement in the financial markets and mortgage rates. Current forecasts are showing a 0.4% rise in income and a 0.4% increase in spending.

The second report of the day is also arguably the single most important report that we see each month. The Labor Department will post May's Employment data early Friday morning. This report gives us key employment readings such as the U.S. unemployment rate and the number of jobs added or lost during the month. Analysts are expecting to see the unemployment rate remain at 4.5% with approximately 140,000 new jobs added. An increase in unemployment and fewer new jobs than expected would be great news for the bond market. It would probably create a sizable rally in bonds, leading to lower mortgage rates Friday.

The next report is the Institute for Supply Management's (ISM) manufacturing index. This highly important index measures manufacturer sentiment. A reading above 50 means that more surveyed manufacturing executives felt that business improved during the month than those who felt it had worsened. Analysts are expecting to see a 54.0 reading in this month's release, meaning that sentiment slipped during May. A smaller reading will be good news for the bond market and mortgage shoppers while an unexpected increase could contribute to higher mortgage rates.

The last report of the day and the last important data of the week will come from the University of Michigan that updates their Index of Consumer Sentiment for May. An upward revision would be considered a negative for bonds, but because of the importance of the day's other data it's not expected to influence interest rates.

Overall, we have a busy week ahead of us. Tuesday's data will set the tone for the first part of the week. The big reports of the week are Friday's Employment data and ISM index. The most volatility in rates will likely come Friday, but Tuesday's CCI report after a long weekend may also lead to rate changes. As always the present state of the Bond Market is as volatile as ever, and it's likely that we'll see three out of the week's four trading days to be extremely active.