Daily Commentary by Larry Baer: Manufacturing activity bounced back
stronger-than-expected in February. Industrial production increased a
solid 0.7% last month while capacity utilization, a measure of the extent to
which the productive capacity of a plant is being used in generation of goods
and services, rose to 79.6%. A solid report from the manufacturing sector
tends to create some upward pressure on mortgage interest rates - but that was
not the case today. It appears mortgage investors largely shrugged this
data off - most likely assuming manufacturing activity will wind down in the
spring unless there is a notable pickup in final sales growth. With
consumers fretting about new tax increases and the unknown ramifications of
major government spending cuts a consumer driven jump in demand appears unlikely
at this juncture.
In a separate report
the Labor Department said the Consumer Price Index for February increased 0.7%,
marking its biggest monthly gain since 2009. Once again mortgage
investors largely shrugged this otherwise mortgage unfriendly data off noting
surging gasoline prices accounted for three-quarters of the spike in consumer
inflation. Stripping out the volatile food and energy components revealed
"core inflation" at the consumer level rose only 0.2% in February -
well below the level the Fed might become concerned enough to start throttling
back their support for steady to perhaps fractionally lower mortgage interest
rates.
Speaking of the Fed
- the Federal Open Market Committee will convene a two-day meeting to discuss
monetary policy next Tuesday morning. The meeting will conclude at 12:30
p.m. on Wednesday with the traditional release of the FOMC's post-meeting
statement. The committee is broadly expected to go out of its way to
assure credit market participants the Fed has no intention of reducing and/or
ending the $85 billion of Treasury debt obligations and mortgage-backed
securities they purchase every month anytime in the near future. The Fed
has repeated said they would not curtail their support for low interest rates
until/unless the national jobless rate fell to 6.5% and/or the consumer
inflation rate rose above 2.5%. Neither of these two benchmarks is
anywhere close to being threatened at present.
Next week's Fed
meeting will be bookended by Tuesday's February Housing Start and Building
Permit report and Thursday's weekly jobless claims and the February Existing
Home Sales figure.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
