Last Week's Economic Retrospective:

Last week was a week of interesting and sometimes conflicting news and headlines. The New and Existing Home Sales report presented conflicting data; existing home sales were a bit worse than expected while new home sales were a bit better than expected. Overall the report showed a moderate cooling in the housing sector, but, no "bubble bursting" activity. Prices appear to have flattened over the past 12 months, with some areas showing very modest increases, others showed very slight price declines. Then there was the Durable Goods Orders (big ticket items that last longer than three years) came in very weak. This suggests purchases are slowing down due to the higher cost of financing. On the other hand, the Purchasing Manager's Index report (this index rates the health of the Manufacturing sector, which makes big ticket items) was surprisingly strong countering the big ticket item data. Personal Income and Spending report came in lower than expected while Consumer Confidence and Sentiment readings were very positive. Last wee was very mixed which reflected on Bond activity. Bond prices and home loan rates bobbed around midweek on the news, but ended up almost exactly where they began.

Last week, The Federal Reserve's favorite inflation measure, the Personal Consumption Expenditure (PCE) Price Index report, was released. The PCE index is a key driver for home loan rates as well as being the largest determining factor that to influence the Fed to decide to keep the Fed Funds Rate in a paused position, continue to hike, or revert to cuts in the near future. The PCE came in showing inflation still remains higher than expected and outside the range of what the Fed wants to see. The Fed has stated they would like to keep inflation between 1% to 2% on a year over year basis. The PCE showed inflation around 2.5%, a little higher than what the Fed&8217;s target. Why is the PCE such an important indicator to the Feds, and to us?

PCE differs from the more widely watched CPI (Consumer Price Index) in a few important ways. CPI measures the change of the cost for a "fixed basket" of goods and services, and assumes that consumers will keep buying the exact same thing, regardless of price change, and assumes the consumer has endless resources to do so. PCE is far more accurate, because it is more realistic as to how the average shopper makes purchases. If the price of honeydew melons goes through the roof, a shopper will more than likely make substitutions, like cantaloupe...or even skip buying that item altogether.

This Week's Economic Forecast:

The week ahead is again full of news and events, including more news on Manufacturing, a speech by Fed Chairman Ben Bernanke on Wednesday, and the important monthly Jobs Report on Friday. Because the news of last week was so mixed, the events of this week will take added significance, as traders, analysts and armchair economists try to get a gauge on what really is happening in the economy.

There has been a clear uptrend in Bond prices which means home loan rates have been in a clear downtrend trend reaching their best levels in six months. So what would need to happen to see more improvement in home loan rates? Bond prices and home loan rates tend to benefit from weak economic news, as traders and investors move money out of the Stock market, and into the stable safety of the Bond market. On the other hand, strongly positive economic news causes money to move into Stocks, and away from Bonds, which may not provide the exciting gains that the Stock market can offer in a vibrant economy.