Weekly National Economic Commentary-March 30, 2011

Posted by Tim Lampe, written by Steve Peterson.

The data are actually somewhat provocative for this past week, though they don’t provide us with a clear idea of the economy’s direction. On the one hand, we have another “downer” announcement from the Standard & Poor’s Case-Shiller Index, which continues to indicate a mild decline among home prices in major metropolitan areas.

 

Pending home sales, on the other hand—that is, newly-signed home sales contracts—made a reasonably solid 2.1% advance in February, which was especially gratifying since the index had declined over the prior two months.

 

More good news: Personal income rose 0.3% in February over January levels—5.1% over year-ago levels. That translated into a 0.7% hike to consumer spending in the month, which is remarkable, given how much we’re all spending on gasoline these days (the recent increase in take-home pay notwithstanding.) So we may be looking at signs of greater willingness among consumers to spend.

 

However, the Consumer Confidence Index was battered a bit by increasing expectations of higher inflation. Further, the Index showed no signs of improving confidence in job formation.

 

Where does all of that leave us? Sifting unsuccessfully through the economic tea leaves, unable to find the answers we need. Along with the indicators themselves the continuing litany of current concerns weighs down on our confidence in the economic recovery. And yet—surprise!—such expectations seem to be rising.

 

Look for a moment at the now-familiar litany, as delineated in the March 29 Wall Street Journal: “spreading political turmoil in the Middle East, sustained higher oil prices, the continuing nuclear crisis in Japan and looming problems for Portugal.” Surely all of these reasons for concern are more than enough to send world investor money running for the safe haven of Treasury securities, pushing Treasury security rates lower. But no. Money is now flowing out of Treasuries and interest rates (including mortgage rates) seem now to be edging up.

 

This is a relatively fragile situation, subject to change on a moment’s notice, but the mood among investors has become impatient. There is a widespread belief that the recovery is firming, and many investors feel they missed out this past year on the strong advances in the stock markets. They don’t want to repeat the mistake, as is evidenced by the fact that money is flowing from bonds to stocks (ignoring the usual reasons to seek safety). And so it may remain, unless another crisis captures our attention. Interest rates may continue to rise slowly, while the stock market indices improve. It may be, in fact, a turning point in market psychology—from safe haven investing to the higher returns of “higher risk” investing.

 

 

KEY INDICATORS [3/29/11]

 

Gold $1417.80/ounce [down]

Crude Oil (Brent) $115.31/brl

[down slightly]

U.S. Dollar to…

    Euro .7106 [up]

    Japanese Yen 82.4190 [up]

    Chinese Yuan 6.5648 [down]

    Canadian Dollar 0.9755 [down]

6-mo Treasury Bill Yield 0.16%

10-yr Treasury Note Yield 3.48%

[6-month up 1 bp, 10-yr up13 bps]

11th Dist Cost of Funds 1.484%[-]

30-yr Fixed-rate Mortgage 5.11%

15-yr Fixed-rate Mortgage 4.40%

1-yr ARM 3.65%

[HSH average includes jumbo rates: 30-yr up 3 bps; 15-yr up 1 bp; 1-yr ARM up 2 bps]

Freddie Mac weekly average rate

            [4.81 - up 5 bps]

 

Mortgage Bankers Association Mortgage Applications Index

week ending 3/18

   Overall

    Up 2.7%; Down 0.7%

the week prior

   Purchase Money Loans

    Up 2.7%; Down 4%

            the week prior

  Refinancing Loans

    Up 2.7%; Up 0.9%

the week prior

 

Jobless Claims 3/19

    382,000 – prior week 387,000 (rev) – Continuing claims down 2,000 to 3.721 million