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Mortgage Market in Review – September 1, 2014

Market Comment

Mortgage bond prices finished the week only slightly higher, which pushed rates a bit lower. Weaker than expected new home sales data Monday morning set a positive tone for rates. New home sales printed at 412K. Traders expected sales at 427K. Orders for durable goods, items not meant for immediate consumption, rose 22.5%. Expectations were for orders to rise 7%. Excluding transportation, orders fell 0.7%. The sharp increase in the headline number was attributed to a rise in aircraft orders. Gross Domestic Product, a summation of economic output in the US, stood at 4.2% in the second quarter versus an expected 4% growth rate. The data followed a decline of 2.9% in the first quarter and was a welcome sign of future economic activity. Mortgage interest rates fell by about 1/8 of a discount point for the trading week.

LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
ISM Index Tuesday, Sept. 2,
10:00 am, et
57.5 Important.  A measure of manufacturer sentiment.  Weakness may lead to lower mortgage rates.
Factory Orders Wednesday, Sept. 3,
10:00 am, et
Up 0.6% Important.  A measure of manufacturing sector strength.  Weakness may lead to lower rates.
Fed “Beige Book” Wednesday, Sept. 3,
2:00 pm, et
None Important.  This Fed report details current economic conditions across the US.  Signs of weakness may lead to lower rates.
ADP Employment Thursday, Sept. 4,
8:30 am, et
222k Important.  An indication of employment.  Weakness may bring lower rates.
Weekly Jobless Claims Thursday, Sept. 4,
8:30 am, et
294k Important.  An indication of employment.   Higher claims may result in lower rates.
Trade Data Thursday, Sept. 4,
8:30 am, et
$41.3b deficit Important.  Affects the value of the dollar.  A falling deficit may strengthen the dollar and lead to lower rates.
Revised Q2 Productivity Thursday, Sept. 4,
8:30 am, et
Up 2.2% Important.  A measure of output per hour.  Improvement may lead to lower mortgage rates.
Employment Friday, Sept. 5,
8:30 am, et
6.1%,
Payrolls +213k
Very important.  An increase in unemployment or weakness in payrolls may bring lower rates.

ISM

The Institute for Supply Management (ISM), formerly the National Association of Purchasing Management (NAPM), releases the “Report on Business” on the first working day of each month.  Part of this report is the “diffusion index,” which tracks the economy’s ups and downs fairly well.

In conducting this survey, the ISM questions purchasing executives from over 250 industrial companies compiling data on production, orders, commodity prices, inventories, vendor performance, and employment.  Each of the respondents is asked to rank the categories as “up” or “down.”  Various weights are applied to the individual components to form the composite index.  A composite index reading of 50 can be thought of as a “swing point.”  A reading above 50 implies an increase in economic activity, while a reading below 50 indicates a decline.  The ISM report is difficult for economists to forecast because there is little data upon which to base an educated guess.  The report has a large “surprise factor” and can cause market swings.

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