Commentary: The Commerce Department released their August Personal Income and Spending report earlier this morning. The data showed incomes fell for the first time in nearly two years requiring consumers to dig into their savings to keep spending. Income slipped 0.1% last month, posting its first decline since October 2009. Spending rose 0.2%. The Fed's preferred measure of inflation pressure at the consumer level, the so-called "core personal consumption expenditure index", rose a very modest 0.1% in August - the smallest increase for this measure since March.
The "so what" factor behind all this statistical mumbo-jumbo is simple and straightforward. Mortgage investors are keenly aware consumer spending accounts for more than 70% of all U.S. economic activity - and as long as economic activity remains sluggish - the upward pressure on mortgage interest rates will remain weak - especially in an environment where inflation threats remain benign.
Looking ahead to the coming week -- Monday's Institute of Supply Management's measure of activity in the manufacturing sector followed on Wednesday by the Institute's measure of activity in the service sector will be little more than a warm-up as mortgage investors await next Friday's September Nonfarm Payroll report. Investors have already priced in expectations for a weak employment story. If those expectations are met - the impact of the jobs report on the trend trajectory of mortgage interest rates will be minimal to non-existent. In the extremely off-chance that the September headline nonfarm payroll number exceeds 75,000 and/or the national jobless rate falls below 9.1% -- it would be reasonable to expect mortgage investors to shove mortgage interest rates noticeably higher. While such an outcome is possible - it is certainly not very probable.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
