Overview: Over the past week, stronger than expected economic growth data was offset by a weaker than expected inflation report, and mortgage rates ended with little change.
Stronger economic growth raises the outlook for future inflation, which is negative for mortgage rates. Given this, Wednesday’s record high reading for the strength of the service sector was bad news for rates. The Institute for Supply Management (ISM) Services Index jumped to 61.6, which was well above the consensus forecast, and the highest level ever recorded since ISM began tracking data in 2008. Readings above 50 indicate an expansion in the sector.
By contrast, the potential for higher inflation down the road hinted at by the strong service sector data was balanced by lower than expected levels of current inflation. In August, the core Personal Consumption Expenditures (PCE) Price Index, which excludes the volatile food and energy components, was 2.0% higher than a year ago, which was below the consensus forecast. This is the monthly inflation indicator favored by Federal Reserve officials, and 2.0% is their stated target level. As mentioned, mortgage rates reacted positively to the report, offsetting the strong economic growth data.
Looking ahead, the important monthly Employment Report will be released on Friday. As usual, these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. The Consumer Price Index (CPI) will come out on October 11. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. In addition, fresh news about trade deals might influence mortgage rates. Mortgage markets will be closed on Monday, October 8, in observance of Columbus Day.