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Mortgage Market in Review – February 3, 2014

Market Comment

Mortgage bond prices finished the week higher which helped mortgage interest rates fall. Rates were worse the first portion of the week in response to mixed data. Durable goods orders fell 4.3% versus the expected 2% increase. This was very rate friendly and initially helped rates improve but those gains were quickly erased in response to stronger than expected consumer confidence data. Consumer confidence came in at 80.7 versus the expected 78 mark. Rates improved Wednesday in response to weaker stocks. Personal income was unchanged versus the expected 0.2% increase. Spending rose 0.4% versus the expected 0.2% increase. Core PCE, an inflation indicator, rose 0.1% as expected. This was rate neutral as tame inflation readings generally help to keep rates in check. Q4 Employment Cost Index rose 0.5% which was slightly higher than the 0.4% increase. Mortgage interest rates finished the week better by approximately 1/4 to 3/8 of a discount point.

LOOKING AHEAD

Economic
Indicator

Release
Date & Time

Consensus
Estimate


Analysis

ISM Index

Monday, Feb. 3,
10:00 am, et

56

Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.

Construction Spending

Monday, Feb. 3,
10:00 am, et

Up 0.8%

Low importance. An indication of economic strength. Significant weakness may lead to lower rates.

Factory Orders

Tuesday, Feb. 4,
10:00 am, et

Up 0.8%

Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.

ADP Employment

Wednesday, Feb. 5,
8:30 am, et

212k

Important. An indication of employment. Weakness may bring lower rates.

Weekly Jobless Claims

Thursday, Feb. 6,
8:30 am, et

342k

Important. An indication of employment. Higher claims may result in lower rates.

Trade Data

Thursday, Feb. 6,
8:30 am, et

$34b deficit

Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.

Preliminary Q4 Productivity

Thursday, Feb. 6,
8:30 am, et

Up 0.8%

Important. A measure of output per hour. Improvement may lead to lower mortgage rates.

Employment

Friday, Feb. 7,
8:30 am, et

6.7%,
Payrolls +128k

Very important. An increase in unemployment or weakness in payrolls may bring lower rates.

Consumer Credit

Friday, Feb. 7,
3:00 pm, et

$11.6b

Low importance. A significantly large increase may lead to lower mortgage interest rates.

ADP Employment Report

The ADP employment report is a measure of employment derived from data of roughly 500,000 US businesses. The survey focuses on the private sector of the economy. In contrast, the Bureau of Labor Statistics releases the regular employment report which includes both private and government employment statistics.

The report has gained more prominence lately in that it is delivered prior to the Friday employment report. This gives analysts an improved forecast heading into the payrolls component of the employment report later in the week.

The Fed is usually focused on keeping inflation in check. Tightening employment conditions can result in wage inflation. The ADP report provides solid data on these conditions. Despite this, the data can still diverge from the regular employment report. The employment report is derived from a household survey and an establishment survey. These surveys often differ from one another and from the ADP employment report in that they are based on different data sets. There are no guarantees that the most important employment report the first Friday of each month will mirror the ADP report released 2 days prior. With this in mind floating into the data is always very risky.

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