“Bond Market News and Perspective for Mortgage Professionals”
Monday, August 30, 2010
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Consumer Spending Rise 0.4% in July, More Than Forecast, as Incomes Lag increasing just 0.2%. The savings rate dropped to 5.9% from 6.2% in June. Disposable income dropped for the first time since January after adjusting for inflation, showing the lack of jobs is hurting Americans’ spending power. The core price index for personal consumption expenditures, which excludes food and energy prices because of their volatility, rose 0.1% in July from June. Year-over-year, the gauge increased 1.4%. That index is closely watched by the U.S. Federal Reserve. Low price pressure will support record-low central bank interest rates that are intended to reduce high U.S. unemployment.
Treasuries Advance After BOJ Says U.S. Economic `Uncertainty’ Increasing. On Friday, 10 year UST yield rose the most since May After Bernanke’s Economic View. The latest catalyst fueling fears about the health of the global economy was a move by the Bank of Japan to further ease monetary policy. Meantime, the week’s first bit of U.S. data reinforced the idea that the U.S. economic recovery remains very fragile.
Bernanke Says Fed Will Do `All It Can’ to Ensure U.S. Recovery. The Fed “is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly,” Bernanke said. the Fed alone can’t keep the recovery going. “Strong and stable” growth will “require appropriate and effective responses from economic policy makers across a wide spectrum” as well as private-sector leaders, he said.
Bernanke Faces Skepticism on Monetary-Policy Tools. Bernanke said the Fed’s remaining tools, including asset purchases, modifying the post meetin gstatement, and lowering the overnight interest rate the Fed pays banks on the resrves, will work if needed. Some attendees at the annual symposium said during the weekend that the effects of such quantitative-easing measures may be weak or that fiscal policy should play a bigger role.
Economic Preview: Employment, Manufacturing Probably Slowed. The most important indicator of the week will be Friday’s Employment report, in which payrolls are expected to fall by 100,000 this month, reflecting a loss of 115,000 temporary census jobs. Furthermore, no change in the 9.5% unemployment rate is forecast. Helping temporarily cap unemployment is an increase in the number of discouraged workers dropping out of the labor force. How the Fed interprets the rise in long-term unemployment will be more important to the policy outlook once the labor market gets back on track. A higher NAIRU, (Non-Accelerating Inflation Rate of Unemployment), also sometimes called the “natural” unemployment rate, means the Fed has less time to wait before raising rates to head off inflation pressures, though the pace of recovery will still determine the size of rate hikes. One area that will be watched closely is wages.
Fannie Mae MBS Issuance Hits Highest Level Since February: $42.7 billion in MBS in July, up 6.4% from June, Fannie also said that the serious delinquency rate on its mortgages fell below 5% for the first time since October 2009.
New Federal Programs to Help Borrowers Pay Their Mortgages. Two new programs will begin a FHA, one a refinancing program to help borrowers who are struggling to pay their home mortgages, and another will start an emergency loan program for unemployed borrowers so they can stay in their homes.
Why the Faltering Recovery? There are many explanations, but consumer spending representing 70%of the economy’s $14.5 trillion of spending, are the crux of the matter. An analyst noted that in 2007, the personal savings rate was 2%, and now it’s about 6% which has hurt buying temporarily. It is this severe retrenchment that might now signal a rebound in consumer spending is coming and the worst may be over.
