Chicago Real Estate and Mortgage News for this week

Interest rates rose sharply this past week, as the sunny signs of an economic recovery continued to peek out from behind the dark clouds that have been overhead. This makes three weeks in a row that we have seen mortgage rates rise. The mortgage market is now in an oversold position, and may be ripe for some improvement in the week ahead. However, first we have to get through an auction of U.S. Treasury Bonds again this week. The government has to auction off treasury bonds to help pay for the national debt, including the massive stimulus package that is helping to get the economy moving again. In order to attract interest in the bond auctions, interest rates often rise ahead of the auction, only to decrease if the auction goes well. If there are not a lot of foreign buyers of the treasury bonds, then rates have to go even higher in order to get them sold. This week there are not a lot of economic reports for the markets to worry about, but they will be watching the auction results and also watching to see if the stock market continues its bullish ways. A strong stock market is also a drag on interest rates, as investors pull their money out of the safety of government bonds and put it into the stock market. It could be a wild, quiet week!

Economic news out this week:
The week started out with news that Personal Income rose by 0.5%, when it was expected to decline. The markets assume that when income increases, so will spending, and this will lead to an improving economy. However, that was not the case in April, as we saw Personal Spending decline by 0.1%, although that was less than the 0.2% decline that was anticipated. The Federal Reserves favorite inflation barometer - the Personal Consumption Expenditures (PCE) index rose slightly from March to April, as rising gas prices began to take a hold of our wallets. The Industrial Supply Manager's (ISM) goods producing index showed a rise to 42.8, above the 42.0 that was expected and the 40.1 from a month earlier. A number under 50 is a sign of a contracting economy, but since the number appears to be rising, the markets think of it as "contracting, but not as much", and rally on the news. Wednesday brought news that crude oil inventories in the U.S. increased by a large amount, which the markets were not expecting. The ISM Services Index, which measures the services side of the economy, came in worse than expected, opposite the goods producing index. This was a little piece of good news for the markets to digest. Also on Wednesday, the ADP National Employment Report was released showing that the economy lost 532,000 jobs in May. This report is often used as a predictor of how the employment report will be when it is released later in the same week. More on that later! On Thursday, we learned that first time Unemployment Claims for last week were 621,000, about in line with expectations and a slight decrease from the prior week. U.S. Factory Productivity rose in the first quarter of 2009 by 1.6%, from a reading of 0.8% in the final quarter of 2008. The economic news event of the week/month was, as per usual, the labor department's release of the employment report for May. The markets were quite surprised by some of the numbers. The report showed that 345,000 jobs were lost in May, lower than the 504,000 lost in April, and much lower than the 520,000 jobs that the markets were expecting to have been lost. Hourly earnings remained steady from April to May, while the average work week dropped slightly. Finally, the Unemployment Rate increased from 8.9% to 9.4%, higher than the 9.2% that the markets were anticipating. The markets initially rallied on the news, as it focused in on the fact that fewer jobs were lost, even though 345,000 jobs lost in one month is a huge number. As the day wore on, more emphasis was placed on the unemployment rate itself. The unemployment rate is derived by a poll of households throughout the country, and is actually considered more relevant than the jobs gained or lost number.



Economic news in the week ahead:

Wednesday - U. S. Balance of Trade - did we increase the amount of goods that we export more than we import?
Wednesday - Crude Oil Inventories - did we use more or less oil during the week? If we used more, that causes the cost to go up, which is inflationary.
Thursday - Retail Sales for May - did the U.S. consumer spend more in May than they did in April? The experts are predicting that retail sales will show an increase of 0.3% from a decrease of 0.4% in April. That would be a sign of an economic recovery.
Thursday - Retail Sales, excluding auto sales. Same as above, only without auto sales included in the numbers.
Thursday - First Time Unemployment Claims - has the number of people losing their jobs finally started to bottom out? Friday - Univ of Michigan Consumer Sentiment Index - this number is expected to show a slight decline from the previous report.