Week of September 7, 2009

INFO THAT HITS US WHERE WE LIVE

We had more good news for housing last week with Pending Home Sales UP 3.2% for July, gaining ground for the sixth month in a row!This positive number should point to yet another hike when August Existing Homes Sales numbers come out. There was also encouraging construction data, as July single-family home building was UP 7% – the largest monthly increase since 1983, when housing boomed coming out of the 1981–1982 downturn. The combination of affordability, low mortgage rates and the $8,000 tax credit for first-time homebuyers is having a terrific effect on the housing market. Unfortunately, that tax credit will expire November 30 unless Congress elects to extend it. Let's hope they do.

Speaking of mortgage rates, these dropped nicely last week, according to Freddie Mac's Primary Mortgage Market Survey. Nationally, the 30-year fixed rate mortgage averaged 5.08% with an average of 0.7 point. That was down from 6.35% a year ago! These rates are for prime borrowers who can put 20% down and who qualify for loans eligible to be purchased or guaranteed by Freddie Mac or Fannie Mae.

Review of Last Week
OFF FOR THE HOLIDAY... The market took a break from its steady move upward, dropping on good economic news, then rallying despite some negative employment data, but still closing a bit down for the week. For the year, the Dow is still UP 7.6%, the S&P 500 UP 12.5% and the Nasdaq UP a whopping 28.0%.

The good news that oddly sent stock prices south included the fantastic Pending Homes Sales and single-family home construction numbers mentioned above. You can add to that BOTH Chicago PMI and ISM Manufacturing readings showing US manufacturing is now expanding. That's right. Manufacturing is starting to grow. The ISM Services Index did not yet indicate growth but it did rise for August, showing business activity in the non-manufacturing sector increasing for the first time since September 2008.

August employment hit Friday. We'll do the worst first. The unemployment rate went to 9.7%, a new high we haven't seen since 1982, but still well below that year's 10.8%. But the 216,000 drop in non-farm payrolls was better than expected. And private-sector payrolls fell by 198,000, their smallest decline in a year. Other good signs included average hourly earnings up for the second straight month, registering their largest gains so far this year. Some economists feel payrolls could start expanding by year's end. They observe that with corporate profits up 24% annually in the first six months, businesses are now able to expand payrolls. We hope so.

For the week, the Dow was down 1.1%, to 9441.27; the S&P 500 dropped 1.2%, to 1016.40; while the Nasdaq slid just 0.5%, to 2018.78.

Bond prices did OK most of the week, then sunk a bit Friday as the stock market rallied in spite of the not-so-great jobs report. Nevertheless, the price of the FNMA 30-year 4.5% bond we watch finished up from the previous week's $100.19 close, ending at $100.50. As noted above, mortgage rates were down for the week, to very nice levels.


This Week’s Forecast
SHORT AND SWEET... With Labor Day on Monday, we have just four days of trading and not a whole lot of economic news. The jobs story will continue, as we monitor weekly initial jobless claims and take a look to see if continuing claims will drop. The Trade Balance will tell us how we're doing in the global marketplace, then the week ends with another reading of the mind of the all-important consumer, this time using the University of Michigan Consumer Sentiment Index

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