Week of September 20, 2010INFO THAT HITS US WHERE WE LIVE 
As promised, last week's reports gave us a complete picture of the housing market in August. Housing Starts rose 10.5% month-over-month to a 598,000 annual rate, well ahead of the expected 550,000 number. Building Permits, which reflect builder sentiment further out, grew a more modest 1.8% month-over-month to a slightly smaller 569,000 annual rate. Thursday, Existing Home Sales came in UP 7.6% over July, at a 4.13 million annual rate. But let's remember, July was a record low, so this gain still left sales down 19% from August a year ago. The median price for Existing Homes, however, ticked up 0.8% year-over-year, as reported by the National Association of Realtors.
Friday saw New Home Sales for August come in unchanged from the previous month, meeting expectations at a 288,000 annual rate. The increases in Existing Home Sales and Housing Starts are welcome, as is the lack of a drop in New Home Sales. But sales are still at fairly weak levels. Observers feel that with the government tax credit, we had an artificial boost in home sales, so what followed was obviously an artificial low and we're now slowly climbing back toward normalcy. Review of Last WeekFOUR IN A ROW... The stock market opened the week strongly, but then lost ground for three days before the bulls were back in control igniting a big rally on Friday, just shy of a 200 point gain for the day. This put stocks UP for the fourth straight week, with the Dow again nearing 11,000 and the broad-based S&P 500 hitting a four-month high.
It was a mixed bag of economic data once again. Housing numbers, covered above, were showing some signs of recovery, but then initial jobless claims grew to 465,000, higher than anticipated and indicating the labor market is still soft. The week ended with Durable Goods Orders down for August.
But the big event was the Federal Reserve meeting Tuesday. They left the fed funds rate unchanged as expected. They also kept policy statement language that says economic conditions are likely to keep the rate at exceptionally low levels for "an extended period." But they have now added that the Fed is prepared to provide additional accommodation if needed. Some think this is what sent stocks up, as investors felt they couldn't lose. If the economy improves, stocks will go up. If the economy stalls, the Fed will step in, so stocks will still go up! We'll see.
For the week, the Dow ended UP 2.4%, to 10860.26; the S&P 500 was UP 2.1%, to 1148.67; and the Nasdaq was UP 2.8%, to 2381.22.
Bonds were on the move up and down all week, and Friday was a down day as investors flocked to those rallying stocks. Yet for the week, the FNMA 30-year 4.0% bond we watch ended UP 8 basis points, closing at $102.17. Freddie Mac's weekly survey of national average mortgage rates reported fixed-rate mortgages not budging from their historically low levels. This Week’s ForecastCONSUMERS, Q2 GDP, INFLATION... Economic reports on the consumer's September mindset bookend the week, with Consumer Confidence expected off a tad on Tuesday but Michigan Consumer Sentiment up a fraction come Friday.
Thursday features the third estimate of Q2 GDP numbers, but no change is expected from the prior reading, which showed a slower 1.6% growth rate. Friday's Personal Spending and Core PCE Prices for August should reveal inflation still well under control. The Week’s Economic Indicator CalendarWeaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates. Economic Calendar for the Week of September 27 – October 1
Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months The policy statement from last week's FOMC meeting preserved the language that the Fed would probably keep rates low for "an extended period." The statement also added that the central bank was ready to provide more accommodation if needed, so economists do not expect to see any change in the Fed funds rate well into next year. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. 
Week of September 20, 2010INFO THAT HITS US WHERE WE LIVE
Fannie Mae released a survey showing 70% of those polled in June and July feel now is a good time to buy a home. This is up from a 64% reading in January. At the same time, 83% of those surveyed think it's a bad time to sell, which isn't such a terrible thing, since there's still plenty of inventory for buyers to choose from.
Another group of industry observers concluded that sales of existing homes hit bottom in July and will rebound in the fall. They based this on recent reports for purchase mortgage applications and pending home sales, which track signed purchase contracts for existing homes.
The fact remains, homes are now more affordable for more people than they've been in years. And today's historically low mortgage rates make monthly payments much easier to work into the family budget. Prices may have bottomed out indeed. The S&P/Case-Shiller Home Price Indexes show that nationally, home prices are 3.6% above levels a year ago. For buyers who expect to live in their home a while, many observers feel this is clearly a very smart time to purchase.
Review of Last WeekUP YET AGAIN... For investors on Wall Street, positive feelings continue to prevail over negative vibes and uncertainties, as stocks closed higher for the third week in a row. All the major market indexes were up, with the extra strength of the tech sector pushing the Nasdaq up well over 3%. In addition, all three indexes are now UP for the year.
Worrying investors, and everyone, were things like Thursday's report that the U.S. poverty rate was at a 16-year high. Other data showed that real median household income last year was essentially unchanged over 2008. No surprise then that Friday's University of Michigan Consumer Sentiment Index came in at its lowest level since August a year ago. The day before, the Producer Price Index reported wholesale inflation a bit higher than anticipated, which got some analysts concerned that consumers might see price hikes next.
Those fears were quelled Friday with Consumer Price Index (CPI) readings that had inflation well under control at the retail level. And the 1.1% year-over-year gain in the CPI showed that those who feared deflation have nothing to worry about for now. Other encouraging signs included a rise in Industrial Production for August that met expectations and August Retail Sales that beat forecasts, evidence that consumers may be worried, but they're still spending!
For the week, the Dow ended UP 1.4%, to 10607.85; the S&P 500 was UP 1.4%, to 1125.59; and the Nasdaq was UP 3.3%, to 2315.61.
It was another mixed week in the bond market, but prices held up enough. The FNMA 30-year 4.0% bond we watch ended a mere 5 basis points ahead for the week, closing at $102.09. National average mortgage rates continue at historically low levels, though some observers do expect them to move up a little by the end of the year. This Week's ForecastWOO-HOO, HOUSING AND THE FED!... This week features our two favorite topics. The Fed's an easy forecast, as virtually no one breathing thinks they'll hike the Funds Rate at their meeting on Tuesday. As usual, however, their policy statement will bear scrutiny, as analysts look for signals that the rate could rise any time soon.
Tuesday's August Housing Starts should finally show a slight uptick in activity. August Building Permits are also expected to be up a little, even though home builders remain cautious. Some experts feel we're starting to turn the corner in housing, as a bit of growth is predicted in Thursday's August Existing Home Sales and Friday's August New Home Sales. The Week’s Economic Indicator CalendarWeaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates. Economic Calendar for the Week of September 20 – September 24
Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months Last week's Consumer Price Index report showed inflation still under control. So with economic growth slowing, economists overwhelmingly believe the Fed will keep rates where they are at this week's FOMC meeting and well into next year. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Week of September 6, 2010INFO THAT HITS US WHERE WE LIVE Last Thursday, July Pending Home Sales came in UP 5.2%. This measure of signed contracts on existing homes indicates we should see an increase in Existing Home Sales for August and September. Some analysts feel it shows the start of positive market movement after the end of the tax credit, which pushed signed contracts forward into April. We now have a new batch of buyers looking to take advantage of today's affordable prices and historically low mortgage rates.
Speaking of prices, Standard & Poor's/Case-Shiller National Home Price Index reported home prices UP 1.0% from May to June in 20 major U.S. cities. This was the index's third straight gain, which many experts feel came from the increased demand due to the tax credits. So sellers still need to be flexible, since not as many eager buyers are now in the market. But prices do seem to be stabilizing, so buyers would do well to act on a property they like, rather than hold out for any significant price declines going forward.
National average mortgage rates have recently been at historic lows. But in their latest forecast, Mortgage Bankers Association economists see rates going up slightly in the last three months of the year, rising a bit above that for 2011, then perhaps up another percentage point by the end of 2012. More reason for buyers and refinancers to not drag their feet!
Review of Last WeekPOSITIVE WITH NEGATIVES... The U.S. economy keeps delivering mixed signals, but this week investors on Wall Street let a positive vibe drive the proceedings. Stocks went up four days in a row, ending with a big rally Friday driven by an August Employment report that was by no means great, but better than the downbeat readings that were expected. All three major stock indexes ended up for the week with the Dow now up for the year.
There were notable negatives that continue to show the pace of recovery has slowed. The ISM Services Index came in below estimates indicating modest growth in the non-manufacturing sector. Consumer inflation was UP 0.2% in July and UP 1.5% over a year ago. This is still within the Fed's acceptable range, although some economists think inflation should start rising noticeably next year. Personal income was up 0.2% for July, but this was below what the consensus expected. Finally, final Q2 Productivity dropped to a 1.8% annual rate, a bigger dip than previously estimated.
Positive signs included the ISM Manufacturing index, reported up for July instead of down as expected. August Consumer Confidence also beat expectations. But the big news came with Friday's Employment Report. The U.S. economy lost 54,000 nonfarm jobs in August, far less than the 100,000+ job losses expected. The private sector added 67,000 jobs, while upward revisions to the two prior months took the net gain to 133,000 jobs. Average hourly earnings were UP 0.3% for the month and UP 1.9% this year. But unemployment ticked up to 9.6%, due to an increase in the work force. So even though the report played well on Wall Street, it didn't on Main Street.
For the week, the Dow ended UP 2.9%, to 10447.93; the S&P 500 was UP 3.7%, to 1104.51; and the Nasdaq was UP 3.7%, to 2233.75.
Bond prices held up for most of the week, but Friday's jobs report surprise kept things in check. The FNMA 30-year 4.0% bond we watch ended UP 7 basis points for the week, closing at $102.27. Again, Freddie Mac's weekly survey showed national average fixed rates for conforming mortgages at historic low levels.
This Week’s ForecastTAKING A BREAK...This week truly is a break from the hectic pace of economic reports we've seen lately. The Fed's Beige Book on Wednesday will give us another take on the central bank's view of the economic recovery, as reported from Federal Reserve Districts across the country. Observers look to this survey for signs of where Fed policy decisions may be heading in the future. We will continue to watch Thursday's Initial and Continuing Jobless Claims, as experts are predicting a slow improvement there. Thursday's July Trade Balance is expected to be down slightly from the prior month, perhaps signaling more demand for our goods overseas.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of September 6 – September 10
Federal Reserve Watch Forecasting Federal Reserve policy changes in coming months Economists believe the Fed will keep rates low well into next year unless we get a boost in inflation or the recovery. Virtually no one expects either of those things just yet. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. 
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