MARKET COMMENT
Mortgage bond prices finished the week near unchanged to slightly lower which put a little upward pressure on rates. Rates were flat the beginning of the week and then shot higher Wednesday and Thursday in response to stronger than expected data. Durable orders rose 1.7% versus the expected 0.7% increase. Revised Q2 GDP rose 3.1% versus the expected 3% increase. Weekly jobless claims were near expectations. Mixed data Friday morning kept rates steady. The core PCE, the Fed’s preferred inflation gauge, rose 0.1%. Analysts looked for an increase of 0.2%. Personal income and spending rose 0.2% and 0.1% respectively which were exactly as analysts anticipated. The Chicago PMI was at 65.2 versus the expected 58 mark. We ended the week unchanged to worse by approximately 1/8 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| ISM Index | Monday, Oct. 2, 10:00 am, et |
59 | Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. |
| Construction Spending | Monday, Oct. 2, 10:00 am, et |
Down 0.2% | Low importance. An indication of economic strength. Significant weakness may lead to lower rates. |
| ADP Employment | Wednesday, Oct. 4, 8:30 am, et |
240K | Important. An indication of employment. Weakness may bring lower rates. |
| Weekly Jobless Claims | Thursday, Oct. 5, 8:30 am, et |
268K | Important. An indication of employment. Higher claims may result in lower rates. |
| Trade Data | Thursday, Oct. 5, 8:30 am, et |
$45B deficit | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| Factory Orders | Thursday, Oct. 5, 10:00 am, et |
Up 0.2% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| Employment | Friday, Oct. 6, 8:30 am, et |
4.4%, Payrolls +178K |
Very important. An increase in unemployment or weakness in payrolls may bring lower rates. |
| Consumer Credit | Friday, Oct. 6, 3:00 pm, et |
$19.5B | Low importance. A significantly large increase may lead to lower mortgage interest rates. |
FED MAKES A CHANGE
Fed Chair Yellen indicated last week that “My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation.” However, she went on to note that “Without further modest increases in the federal funds rate over time, there is a risk that the labor market could eventually become overheated, potentially creating inflationary problems down the road that might be difficult to overcome without triggering a recession.” These statements caused some uncertainties as the Fed appears perplexed by the recent low inflation readings. The Fed wants to see inflation at their 2% target and will continue to raise rates gradually but has to be careful that they don’t hinder the recovering economy in the process. The good news in the short term is that mortgage rates remain historically low as a result of low inflation. Now is a great time to take advantage of rates at these levels.
