Market Reports
A mortgage update from Jay Skwierawski for the week of August 9
Interest rates rose last week on some mixed news on the economy, and a very favorable jobs report. This week's economic calendar could also move the markets, but so far we've seen rates improve.
Last Week's news:
On Monday, we heard that the Industrial Supply Managers' index had risen to 48.9 - above June's 44.8 number and the 46.5 that was expected. This number is important, because a number over 50 means that the economy is coming out of a slowdown or recessionary period. Tuesday's Personal Spending and Income numbers were mixed. Spending rose more than expected (good for the economy), while income fell more than expected (bad for the economy). The Federal Reserve's favorite gauge of inflation - the Personal Consumption Expenditures index (PCE) and core PCE, without energy costs, both came in in-line with expectations and within the Fed's target for inflation. On Wednesday, the ADP employment report showed that 371,000 jobs were lost in July, higher than expected, but this number often comes in different than the employment numbers that the government's labor department puts out, and last week was no exception to that, as the Labor Department reported that only 247,000 jobs were lost in July, much lower than the June's loss of 443,000 and the anticipated number of 328,000. In addition, the surprise of the week was that the unemployment rate dipped to 9.4 percent in July from 9.5 percent in June. It was expected to increase to 9.6 percent. Many are still predicting that we will see a double digit unemployment rate before too long. The Industrial Supply Manager's services index showed a drop in July. Finally, first time claims for unemployment dropped to 550,000, much lower than expected. It would appear by the numbers that the employment picture is getting better. However, the employment numbers are very volatile, so we won't know for a few months if we are indeed on our way to a recovery as far as employment is concerned.
This week, we can look forward to the following reports being released:
Tuesday - Today's report on productivity was a surprise to the upside. Our factories are becoming more productive, and doing so with less workers and with lower costs.
Wednesday - The Federal Reserve's Open Market Committee (FOMC) will announce its most recent interest rate decision, as it ends two days of meetings. The Fed is expected to hold rates steady at their current levels, while indicating that they are going to continue to purchase long term U.S. Treasury and Mortgage bonds. Although the economy is showing signs of improvement, the Fed is not expected to say or do anything that will spook long term interest rates. That bodes well for mortgage rates in the near term. Wednesday also will bring news on the U.S. Trade balance and crude oil inventories. Both of these reports have a moderate impact on mortgage rates. Thursday the markets will focus on the first time unemployment claims number to see if last week's lowering trend continues. We'll also get reports on retail sales on Thursday. Retail sales numbers can have a big impact on interest rates, as they show if consumers are willing to open their wallets and spend, spend, spend. Spending is what makes our economy work. Finally, on Friday we will see reports on inflation with the consumer price index (CPI), consumer sentiment, Industrial Production and Factory Capacity Utilization.
In addition to all of the economic reports, the government starts a record size three day auction of government debt today with an auction of 3 year notes. This will be followed by longer term maturities tomorrow and Thursday. The markets will be watching to see what kind of foreign demand there is for these securities. Good foreign demand, rates go down. Weak foreign demand, rates go up. The U.S. absolutely needs foreigners to invest in our bonds to keep the our economy going. A lack of interest by foreigners would mean that rates would have to go up to a point where interest returns.
Should be an interesting week!
Thank you!
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
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