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Events
This Week:
GDP
Slower
New
Home Sales Up
Confidence
Down
Manufacturing
Mixed
Events
Next Week:
Mon 8/2
ISM Manuf
Tues
8/3
Pending Sales
Income
Wed 8/4
ISM Services
Fri 8/6
Employment
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Below
Average GDP Growth
Uncertainty
about the pace of the economic recovery pushed mortgage rates down to
another record low this week. The economic outlook is for slower than
normal economic growth with low inflation, which is favorable for mortgage
rates. The risks of a "double dip" recession and deflation also
increase demand for relatively safer investments such as mortgage-backed
securities (MBS).
The
consensus economic outlook is for slower than average economic growth for
several years. The Gross Domestic Product (GDP) report released this week
was consistent with this view. GDP increased at a 2.4% annual rate during
the second quarter of 2010, which was below the long-term average of about
3.0% per year. With a high Unemployment Rate, below normal economic growth
is far from ideal for the labor market, but this is what investors expect.
If the economy performs much more poorly, however, the consequences could
be severe. The Fed's Bullard stated this week that he is worried about the
risk of a deflationary period in the US similar to that of Japan, which
would be very undesirable for the economy, but which would likely lead to
lower mortgage rates. He emphasized that he thinks that the most likely
scenario is for continued modest economic growth.
The
best steps to take to stimulate the economy are being highly debated right
now. It's not clear whether further monetary stimulus from the Fed would be
effective enough to offset the downside effects. As a result, most Fed
officials feel that they should not take additional actions unless the
economy experiences a major downturn. Given enormous budget deficits,
fiscal stimulus (more government spending) is also a highly contested
option. The Fed's Fisher pointed to uncertainty about government policies
and regulations as a major obstacle for faster growth, but this may not
change very quickly. In any case, if the economy follows the expected path
for modest economic growth, it may be difficult for the Fed or the
government to launch any major new stimulus actions.
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Also Notable:
- June New Home Sales rose 24% from a record low
level in May
- Consumer Confidence fell to the lowest level
since February
- The Fed's Beige Book painted a picture of slow
economic growth in most regions
- The Obama administration will provide a
"comprehensive housing finance reform proposal" by Jan.
2011
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Average
30 yr fixed rate:
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Last
week:
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-0.02%
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This week:
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-0.05%
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Stocks
(weekly):
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Dow:
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10,500
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+100
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NASDAQ:
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2,250
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+25
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Week
Ahead
The
biggest economic event next week will be the important Employment report on
Friday. As usual, this data on the number of jobs, the Unemployment Rate,
and wage inflation will be the most highly anticipated economic data of the
month. Early estimates are for a decrease of about 120K jobs in July.
Before the employment data, ISM Manufacturing will be released on Monday.
Personal Income will be released on Tuesday, along with Pending Home Sales,
a leading indicator for the housing market. ISM Services is scheduled for
Wednesday. Construction Spending and Factory Orders will round out the
schedule.
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If you
know of anyone thinking of buying or refinancing, please think of me.
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