Manufacturing Rebounds

February 5, 2020

 

Overview: Shifting expectations for the impact of the coronavirus and a few important economic reports caused some brief bursts of volatility over the past week. None of these influences had much lasting effect, however, and mortgage rates ended nearly unchanged.

As it relates to mortgage rates, the main question about the coronavirus is how much global economic growth will slow due to decreased travel and other economic activity. Since there was little new information this week to help investors determine the answer, its effect on rates was minor.

 

The biggest surprise in the economic data released this week came from the manufacturing sector. The Institute for Supply Management (ISM) Manufacturing Index rose far more than expected, from 47.8 to 50.9, which was the highest level since July. Global manufacturing activity has been hampered in recent months by increased tariffs and other restrictions resulting from the trade negotiations between the U.S. and China. Since readings above 50 indicate an expansion in the sector, the latest report was a significant improvement and may be a sign that the phase-one trade deal reached near the end of last year has helped reverse the downturn..

 

Gross domestic product (GDP), the broadest measure of economic activity, increased 2.1% during the fourth quarter, which matched the consensus forecast and was the same growth rate as the third quarter. Early estimates for the first quarter of this year are a little lower, partly due to the anticipated negative impact of the coronavirus.

 

Week Ahead

Looking ahead, 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. Aside from this labor market report, it will be a very light week for economic data. In addition, news about the coronavirus, the U.S. elections, or the trade negotiations with China could influence mortgage rates.

 

ISM Manufacturing Index

 

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