Sending a positive message of economic expansion to start the Labor Day weekend, the Labor Department reported that employers added 128,000 jobs in August, pulling down the unemployment rate to 4.7% from July's 4.8%, better than analysts' expectations. Similarly, the number of workers filing claims for unemployment benefits also dropped by 2,000 to 316,000 from the previous week.

Meanwhile, consumer spending rose by a healthy 0.8% in July, double the 0.4% gain in June and slightly ahead of the 0.7% forecast of Wall Street economists, the Commerce Department said August 31. The core personal consumption expenditure index -- a key inflation gauge closely tied to the consumer spending report -- rose a mere 0.1% in July, the smallest gain since December.

Buoyed by back-to-school promotions, the nation's retailers got a passing grade as same-store sales (sales at stores open a year or more) rose 3.2% over August 2005 sales, a Goldman Sachs retail index showed August 31. The performance exceeded Wall Street's forecast of 3%.

Furthermore, factory orders, excluding transportation equipment, increased 1.1% in July, the Commerce Department said August 31.

All of the above-mentioned reports reinforce the Federal Reserve's forecast that growth will slow without stalling and inflation will ease, a scenario that could let the Fed keep interest rates steady through year-end.

The average rate for 30-year mortgages fell for the sixth consecutive week, Freddie Mac reported on August 31.

This week look for updates on worker productivity on September 6.

Posted September, 2006
by Jeff Melancon
   

When the Federal Reserve meets on August 8, it will decide to either raise or hold the line on interest rates. Here's some of the data from last week they'll consider:

The unemployment rate hit a five-month high in July as employers added just 113,000 new jobs for the month, far fewer than the 145,000 that economists had predicted. The unemployment rate jumped from 4.6% in June to 4.8% in July, the Labor Department reported August 4.

Rising gasoline prices helped slow consumer spending increases from 0.6% in May to 0.4% in June, the Commerce Department said August 1. Commerce officials also reported that core inflation, which excludes volatile energy and food costs, rose 2.4% in the past 12 months, the fastest gain since April 1995.

New orders at U.S. factories rose a smaller-than-expected 1.2% in June. Wall Street analysts anticipated a 1.8% rise. After stripping out transportation-related orders, which rose 7.4%, factory orders gained a scant 0.1%.

Mortgage application volume fell to its lowest level since May 2002, the Mortgage Bankers Association reported August 2. The MBA's market composite index, a gauge of mortgage loan application volume, fell to 527.6, down 1.2% from the previous week's reading of 533.8.

Yet, construction spending rose a stronger-than-expected 0.3% to a record seasonally adjusted $1.217 trillion annual rate in June, up from May's $1.214 trillion. While there were gains in nonresidential and public building, private residential construction fell for the third consecutive month.

This week look for an update on worker productivity on August 8, as well as a report from the much-anticipated Fed meeting.

Posted August 07, 2006
by Jeff Melancon
   

Sales of new homes slumped 3% in June to a seasonally adjusted annual sales pace of 1.13 million units, the first drop in four months, the Commerce Department reported July 27. Although smaller than the 4.8% decline economists had expected, slackening demand raised the inventory of unsold homes to a record high of 566,000 -- a backlog that would take six months to sell. The median price of a new home was $321,300, up just 2.3% from a year ago and down by 1.5% from May.

Meanwhile, sales of existing homes in June dropped 1.3% to a seasonally adjusted annual rate of 6.62 million units. The decline, which matched economists' predictions, was the eighth in the past 10 months. The median price of an existing home sold last month was $231,000, up just 0.9% from June 2005.

The Federal Reserve Board's latest survey of economic conditions, referred to as the Beige Book, said the economy logged decent, but slower growth in the early summer, and that overall inflation remained fairly moderate. The Fed will use the Beige Book and other economic reports to determine the future course of interest rates at its next meeting, August 8.

Orders to U.S. factories for large manufactured goods rose 3.1% in June, much better than the 1.7% gain Wall Street watchers had expected. The rebound for durables -- goods expected to last three or more years -- was powered by strong demand for commercial aircraft.

The labor market remained strong as the number of Americans filing for unemployment benefits fell by 7,000 to 298,000.

This week look for updates on construction spending on August 1 and factory orders on August 3.

Posted July 31, 2006
by Jeff Melancon
   

Growing geopolitical instability in the Middle East drove the price of oil to a record $78.40 a barrel on July 14. On the same day, rising gasoline prices were cited as the primary reason for slowing retail sales, which dipped 0.1% in June, according to the Commerce Department. The decline surprised economists, who had predicted a 4% sales increase.

Climbing energy prices helped fuel a 0.8% increase in the U.S. trade deficit, which grew to $63.84 billion in May from a revised $63.34 billion in April, the Commerce Department said July 12. The shortfall, however, was better than expected, largely because U.S. exports rose by 2.4% to $118.7 billion in May from $115.9 billion in April.

Personal bankruptcies plunged 69% to 142,815 at the end of the 2006 second quarter from 458,991 a year earlier, according to Lundquist Consulting, which collects data from U.S. Bankruptcy Courts. Last year, a new federal law made it harder for borrowers to erase their debt.

Initial jobless claims rose by 19,000 to 332,000 for the week ended July 8, reflecting temporary shutdowns at some auto factories retooling for the 2007 models.

Interest rates on 30-year mortgages fell for the first time in five weeks amid expectations that the Federal Reserve won't push rates much higher, Freddie Mac reported July 13.

This week look for Labor Department updates on the Producer Price Index on July 18 and the Consumer Price Index on July 19.

Posted July 17, 2006
by Jeff Melancon
   

 
Mortgage rates are a hair lower, with the lowest-fee, 30-year stuff approaching 6.75 percent, taken by the 10-year T-note's decline to 5.05 percent.

Why the 10-year has fallen toward the bottom of the four-month, 5-5.25 percent band is a matter of sorting dogs that bite from ones that merely bark. Ditto for measuring the odds of falling out of the bottom of that band.

The 21st century is only five years old, but this week has brought another in an already long list of new-century lessons on the difference between the effective use of force and counter-productive use, whether in the name of self-defense, redress of grievance, or moral imperative.

Events in and near Palestine this week do present a low-order risk of wider conflict and a threat to oil supplies. However, this latest spasm of righteous retribution among peoples who hate each other but are chained together has had little effect on financial markets, and instead produced widespread disgust at all parties involved -- even Arab condemnation of Syria as Hezbollah accelerant.

As the news has arrived, first from Gaza, now Lebanon, oil prices have moved, but the three bucks from $74 to $77 is hardly a panic, and has alternate explanation. There has been no news-synchronized flight of cash to Treasurys for safety. The stock market is having an awful time, now testing multi-year lows, but has reasons far from the Middle East to do so (the Middle East does make good cover, though).

The bond market has been moving lower in yield in the two weeks since the Fed's last meeting on a consistent string of reports of a slowing economy, and rising oil prices. The pattern: the consumer is showing signs of long-expected exhaustion.

Today we learned that retail sales failed to grow for the third month in a row, down 0.1 percent versus expectations of a gain. Makes sense, as the employment cost index (tipped upside down, a good measure of income from employment) has gained only 2.6 percent in the last year, the lowest gain on record, versus much higher energy and interest costs and the gradual evaporation of the wealth effect from home prices.

The energy picture is disturbing. A global-security spike in oil prices would soon reverse; and, unfortunately, that's not what this is. American gasoline consumption is running at the same level as last year, and we are competing with some hefty buyers. China's oil imports surged 15 percent in the first 90 days of 2006, double the forecast, but consistent with an economy growing almost 10 percent per year, and the dawn of affluence is disproportionately increasing appetites for energy (cars!).

Confounding everyone from those who would limit fossil-fuel use to prevent climate change to central bankers who would limit inflation, global energy demand continues to grow, firmly linked to GDP growth. Yes, we are more efficient, but as global GDP grows, oil demand grows faster than efficiency. US total consumption of gasoline has been the same since 1984, 55-65 million gallons per day. Automobiles are much more efficient, but there are a hell of a lot more of them, more every day.

Some in the bond market think this latest rise in oil prices will be the coup de grace for consumers, while others think the inflation hazard will force the Fed to hike one or more times, which in turn will put the final kibosh on consumers. It doesn't matter which: kibosh is kibosh.

Stock market types are blaming oil, the Middle East, and North Korea for their evident distress, when a softening economy is a simpler explanation. Bonds have improved tick-for-tick on the stock market sell-off.

The Fed is at 5.25 percent, and the entire Treasury curve is farther below the Fed than last week. In the seven similar circumstances in the last 40 years, a recession ensued six times, and the one miss was due to a rapid retreat by the Fed.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.

Posted July 14, 2006
By Lou Barnes
Inman News