Daily Commentary by Larry Baer: The
first-estimate of economic growth for the third-quarter indicted a late burst
in consumer spending offset the first cutbacks in investment in more than a
year by cautious businesses.
Gross Domestic
Product, a number intended to represent the value of all goods and services produced
in the nation, expanded at a 2.0% annual rate during the third-quarter
according to data compiled by the Commerce Department. The third-quarter gain was a substantial
improvement over the second-quarter's pace of 1.3%.
One reason GDP came
in a bit stronger than most analysts were expecting was due to the strength in
federal government expenditure. According to BNP Paribas economists, what
really was going on here was an increase in defense maintenance costs, which in
fact was estimated by the government; which dramatically increases the
probability this data will be revised downward in the future. Government spending accounted for 0.7% of the
third-quarter GDP growth. Most
experienced mortgage investors were quick to discount the apparent surge in
third-quarter economic activity as unsustainable rendering what would have
otherwise been a potentially mortgage interest rate unfriendly report
toothless.
Looking ahead to
next week -- Monday's Personal Income and Spending Report for September and
Friday's October Nonfarm Payroll report will book-end an otherwise lightly
populated economic calendar. Mortgage
investors have already priced in benign income and spending data and are
largely anticipating Friday's employment report will show the economy created
125,000 new jobs while the national jobless rate ticked higher to 7.9% from
September's 7.8% mark. If these
assessments prove accurate, the macro-economic news will tend to supportive of
steady mortgage interest rates.
In the run-up to
Friday's nonfarm payroll report the trend trajectory of mortgage interest rates
will be most influenced by trading action in the stock markets. Higher stock prices will tend to drag rates
higher while falling stock prices are almost certain to prove supportive of the
prospects for steady to perhaps fractionally lower mortgage interest
rates.
The Dow is testing
the very strong support at, or very near the 13,000 level (as I write the Dow
is trading at 13,054) *. As I first mentioned in Monday's commentary
I think it is likely a downward breach of the support at or very near 13,000
opens the door for a drop into the 12,400 range before sellers might consider
taking a brief pause to catch their breath.
I currently believe the near-term prospects for further downward movement
in the Dow is limited - but should such a scenario actually develop -- the
likelihood mortgage rates will move lower from current levels is strong.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
