Overview: Mortgage markets were very volatile over the past week, as a large batch of significant economic data contained several upside and downside surprises. In the end, the various reports were roughly offsetting, however, and mortgage rates were nearly unchanged.
Two significant economic indicators released this week from the Institute of Supply Management (ISM) provided additional evidence that consumer spending has been shifting from goods to services. The ISM Manufacturing Index fell to 52.8, which was close to expectations, but the lowest level since June 2020. By contrast, the ISM Services Index rose to 56.7, which was far above the consensus forecast. Levels above 50 indicate that the sectors are expanding.
Gross domestic product (GDP) is the broadest measure of economic activity. During the second quarter, GDP fell at an annualized rate of 0.9%, far below the consensus forecast for an increase of 0.5%, but an improvement from a decline of 1.6% during the first quarter. Many components had negative readings, including inventories, private investment, consumer spending on goods, and government expenditures. Consumer spending on services was one of the few areas showing strength. In June, the core Personal Consumption Expenditures (PCE) Price Index, an inflation indicator closely watched by Federal Reserve officials, was up 4.8% from a year ago, which was a little higher than expected. For comparison, the annual rate of increase was below 2% during the first three months of 2021. The key issue for investors and Fed officials is how quickly inflation will moderate as global supply chain disruptions are resolved.
Looking ahead, investors will listen closely to comments from Fed officials for guidance on the pace of future rate hikes and bond portfolio reduction. Beyond that, the monthly Employment Report will be released on Friday, and 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 be released on August 10. CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services.
ISM Services Index