MARKET COMMENT
Mortgage bond prices finished the week lower which pushed rates higher. Rates started the week higher and ended the week higher with only a slight reprieve Thursday. The NAHB Housing Index was higher than expected. Housing starts were 1211K versus the expected 1180K. Consumer prices were relatively in check. The core rose 0.1% versus the expected 0.2% increase. Industrial production rose 0.7% versus the expected 0.3% increase. Fed members appeared to prep the financial markets for a rate hike this year. New York Fed President Dudley and San Francisco President Williams both talked about a rate hike and Williams said the Fed should hike sooner rather than later. The Fed minutes from the last meeting even showed that a member voted for a rate increase. Mortgage interest rates finished the worse by approximately 1/4 to 3/8 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| New Home Sales | Tuesday, Aug. 23, 10:00 am, et | 592K | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
| FHFA House Price Index | Wednesday, Aug. 24, 10:00 am, et | Up 1.2% | Moderately Important. A measure of single family house prices. Weakness may lead to lower rates. |
| Existing Home Sales | Wednesday, Aug. 24, 10:00 am, et | 5.57M | Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
| Weekly Jobless Claims | Thursday, Aug. 25, 8:30 am, et | 259K | Important. An indication of employment. Higher claims may result in lower rates. |
| Durable Goods Orders | Thursday, Aug. 25, 8:30 am, et | Down 0.8% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
| Q2 GDP 2nd Estimate | Friday, Aug. 26, 8:30 am, et | Up 1.2% | Very important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| U of Michigan Consumer Sentiment | Friday, Aug. 26, 10:00 am, et | 90.3 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
DURABLE GOODS
Durable goods orders are generally believed to be a precursor of activity in the manufacturing sector because manufacturing must have an order before considering an increase in production. Conversely, a decrease in orders eventually causes production to be scaled back; otherwise the manufacturer accumulates inventories, which must be financed.
Unfortunately, durable goods orders data has many drawbacks. The first problem with the orders data is that they are extremely volatile. The volatility of the data usually is attributed to the civilian aircraft and defense components of the figure. For example, if Boeing has a big order for one of its jumbo jets, the civilian aircraft category can change by $3-4 billion. The same scenario is evident when an aircraft carrier is ordered, surges in the defense category result. The second problem with the data is that orders are continuously being revised. There are many times in the past when the advance report on durables showed an increase while a revision a week later showed a decrease. The revised data is found in the report on manufacturing orders, shipments, and inventories.
Since the data is very volatile and difficult to forecast, there is quite often a huge disparity between the actual release and the initial projections. Be cautious heading into the data.
