In the first of two economic reports released this morning the Commerce Department said orders for durable goods (items manufacturered to last three years or more) fell 1.3% in August, reflecting a sharp decline in orders for transportation equipment. But a barometer of capital spending by businesses rose a surprisingly strong 4.1% -- igniting a rally in the stock market and producing a sell-off in the mortgage market as investors scale-backed their outlook for a "double-dip" recession before the year is out.
The Commerce Department's second report of the day showed new home sales were flat in August at the second lowest level on record. Compared with August 2009, new home sales are down 28.9%. Mortgage investors gave this data little more than a passing glance since all market participants are keenly aware a recovery in the housing sector will not begin until joblessness and sagging consumer confidence show sustained multi-month improvement.
Looking ahead to next week Uncle Sam will be in the credit markets from Monday through Wednesday conducting a three-part auction featuring 2-, 5-, and 7-year notes. Thursday's weekly initial jobless claims data and Friday's Institute of Supply Management's Manufacturing Index will dominate the economic calendar.
Mortgage investors are currently expecting weekly claims to drift 7,000 lower while the ISM's manufacturing index hovers at 54.5. Should claims fall more strongly and/or should the manufacturing index show a reading greater than 54.5 look for upward pressure on mortgage interest rates to increase.
Numbers that match or fall below the consensus estimate for one or both of these reports will tend to support steady to perhaps fractionally lower mortgage interest rates. Consider the latter to be the high probability outcome scenario.
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