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Mortgage Rates Improve after Brief Upward Tick
Yesterday was one of those strange days in the markets in which conventional wisdom did not explain the movement of the markets and mortgage rates. Generally as most readers of this blog are aware, good economic news leads to higher interest rates week economic news leads to lower economic rates. Not yesterday. Yesterday we got shockingly bad economic data and the stock market was up over 100 points and interest rates went up. Say what?
Well yesterday’s strange market action was related to two surprising economic reports. The first report was nothing short of shocking. 2nd quarter Final GDP was reported at 1.3% rather than the expected 1.7%. What makes this shocking—frankly inexplicable is the fact that GDP is released in three installments over a three month period. 30 days after a quarter ends we get “Advance GDP” figures which is an estimate based on preliminary figures. 60 days after a quarter ends we get “Preliminary GDP” figures which have been adjusted to reflect more accurate reporting. Finally, 90 days after a quarter ends we are given “Final GDP” figures which represent the “official” US government GDP result for the quarter in question. What makes yesterday’s report shocking is the.4% variance of the “Final” figure from the “Preliminary” figures.
Analysts who study the Census Bureau’s GDP reports indicate that the average variance between “Advance” and “Preliminary” GDP figures is .2%. They also note that that variance is almost always to the high side. But variance between “Preliminary” and “Final” GDP figures is less than .1%. What happened this time. The nice answer is that the US Census bureau made a mistake. The more conspiratorial, but perhaps realistic, answer is that they manipulated the result to make the economy appear more robust than it actually is. Unfortunately, the truth that the recovery is dramatically weaker than believed has ramifications for the markets and rate.
The second surprise yesterday was the dramatic 13% decline in durable goods orders. A drop was expected due to last month’s surprisingly high result due to a major order of new planes from Boeing. Unfortunately, the drop this month went well beyond a drop in airplane orders, extending to all sectors of manufacturing.
With this bad news how did stocks rally and mortgage rates rise? I believe it was a realization that the Fed’s recent decision to begin open-ended QE was more an act of desperation than an attempt to nudge the economy forward and create jobs. More importantly, it was the development of a perception that QE might not be enough to fight the economic tide.
Today rates are back to reacting normally to data. They are improving as weak income growth and manufacturing numbers continue the slowing US economic theme.
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2012-09-29 07:00:57
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