Caroline's Weekly Market Review

In a packed week, the two big economic reports were the main drivers of mortgage rates. The outperformance of the GDP data relative to expectations outweighed the small miss in the Employment report, causing mortgage rates to end the week a little higher. Last week's Fed meeting contained no surprises and had little impact.

Investors expected that the economy had bounced back during the second quarter from weather related weakness in the first quarter, but they were still caught by surprise by the strength of Wednesday's GDP report. The first reading for second quarter GDP, the broadest measure of economic growth, showed an increase of 4.0%, far above the consensus of 3.0%. In addition, revisions to the first quarter results caused improvement from -2.9% to -2.1%. The second quarter recovery was seen in nearly every area, including the key components of Consumer Spending and Business Investment. The GDP report was great news for the economy, but faster growth raises future inflationary pressures, which is negative for mortgage rates.

Friday's Employment report also showed continued improvement, but it fell slightly short of investor expectations. Against a consensus forecast of 230K, the economy added 209K jobs in July. The Unemployment Rate increased from 6.1% to 6.2%. Average Hourly Earnings, a proxy for wage growth, came in below the consensus. Bottom line, the sixth straight month of job gains above 200K was also great news for the economy, but because investors had anticipated even stronger results, mortgage rated declined following the news.

The economic calendar will be very light this week. ISM Services and Factory Orders will be released on Tuesday. The Trade Balance and Productivity will come out later in the week. None of these reports are generally market movers. Investors likely will be more focused on events outside the US. The number of potential trouble spots around the world has increased. Growth fears in Europe, conflicts in Ukraine and the Middle East, banking troubles in Portugal, and a debt default in Argentina all could influence US mortgage rates.