Updated on January 27, 2022 10:02:29 AM EST
The initial 4th quarter Gross Domestic Product reading (GDP) was posted early this morning, revealing the U.S. economy grew at a faster than expected annual rate of 6.9%. The higher reading means the economy was stronger than many had thought. A secondary number in the data that is considered to be an inflation reading also came in stronger than predicted. Since bonds tend to thrive in weaker economic conditions, we have to consider this report as bad news for mortgage rates.
December’s Durable Goods Orders report was also released at 8:30 AM ET. It showed that new orders for big-ticket products fell 0.9% last month in a sign of manufacturing sector weakness. Forecasts were calling for a 0.5% decline. Unfortunately, this data is known to be quite volatile from month to month, so the variance between expectations and the actual decline are not nearly as meaningful as it would have been in many other reports. So, while we can label the report as good news for mortgage rates, it hasn’t had much of an influence on this morning’s pricing.
Last week’s unemployment numbers were also posted early this morning, showing 260,000 new claims for benefits were filed last week. This was down from the previous week’s revised 290,000 initial filings, but pegged forecasts. We can consider the data to be neutral for mortgage rates since they showed no major surprise and are reflective of just a weekly snapshot of part of the employment sector.
In addition to this morning’s economic releases, we also have today’s 7-year Treasury Note auction to watch. Results will be posted at 1:00 PM ET, making this an early afternoon event for rates. A strong demand from investors could help boost bond prices later today and possibly lead to a slight improvement in mortgage rates. A lackluster interest in the securities would have an opposite effect.
We have three economic reports set for release tomorrow morning. The first comes at 8:30 AM ET with the release of Decembers Personal Income and Outlays data. It gives us an indication of consumer ability to spend and current spending habits, making it relevant to the bond market and mortgage rates. Forecasts are calling for an increase in income of 0.5%, signaling consumers had more money to spend in December than they did in November. The spending reading is expected to decline 0.6%. Stronger readings would be good news for the stock markets and could hurt bond prices, driving mortgage rates higher. Weaker than expected numbers would be considered favorable news for the bond market and mortgage rates. Adding to the importance of this report is the fact it includes the Fed’s preferred inflation index that is expected to have risen 0.4%.
Also early tomorrow morning will be the release of the 4th Quarter Employment Cost Index (ECI). 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 tomorrows mortgage rates, but unless we see a large variance from forecasts, I am not expecting this report to have much of an influence on rates.
The final economic report of the week is the revised January reading to the University of Michigans Index of Consumer Sentiment at 10:00 AM ET. This index is another measurement of consumer confidence that is thought to indicate consumer willingness to spend. Analysts are expecting to see little change from the preliminary reading of 68.6. A large increase would mean consumers are more likely to make a large purchase in the near future, fueling economic growth. The lower the reading, the better the news for rates.
©Mortgage Commentary 2022