Commentary: Today's economic news clearly shows a majority of consumers have hunkered down and are refraining from spending on anything other than necessities. Consumer spending accounts for more than two-thirds of all U.S. economic activity. According to Commerce Department figures the overall pace of August retail sales was unchanged on a month-over-month basis. For many analysts this data raises fresh questions about the country's ability to steer clear of a double-dip recession.
A separate report from the Labor Department showed prices at the factory gate were unchanged in August, held down by a drop in energy costs. It was the second time headline prices failed to rise in 2011. The core rate of the August Producer Price Index, a value that strips out the more volatile food and energy components, rose a very modest 0.1%. Today's Producer Price Index report sends the Fed a pretty clear message that inflation pressures in the manufacturing sector of the economy remain benign.
The collective story told by these two macro-economic reports will probably be interpreted by most mortgage investors as interest rate neutral.
Speaking of mortgage investors, the Mortgage Bankers of America released their Mortgage Application Survey for the week ended September 9th, 2011 earlier this morning. Overall loan application activity increased 6.3% last week. Purchase requests increased by 7.0% while the refinance demand posted a 6.0% gain. Refinance requests accounted for 8 out of every 10 loans applications taken last week.
The contract rate for a 30-year fixed rate mortgage finished the week at 4.17%, its lowest level ever recorded. The rate was down 6 basis-points from a week ago, down 15 basis-points from four-weeks ago, and down by 30 basis-points from the year-ago mark.
Europe's deepening debt crisis and expectations the Federal Reserve may soon increase its purchase of long-dated Treasury debt obligations should combine to create decent demand at today's government debt sale. Uncle Sam will be in the credit market looking to borrow $13 billion through the sale of 30-year bonds. Given the current headline risk, investors will likely overlook the miniscule return being offered on these bonds in favor of their relative safety. If my assessment proves accurate, look for this event to be supportive of steady mortgage interest rates. In the unlikely event this auction goes poorly -- expect mortgage interest rates to creep fractionally higher.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
