Personal Income Increased 0.1% in January, Consumer Spending Increased 0.5%, More Than Forecast. The saving rate slowed to the smallest since 2008. Income has gone up six straight months and spending has increased four straight times. The saving rate in January was the lowest since 2.9% in October 2008. The rate was 3.3% in January, compared to 4.2% in December. The better-than-expected reading on spending took some of the sting out of a report Friday showing the government lowered its fourth-quarter estimate on consumer spending, to a 1.7% increase from a 2.0% increase.
ISM Manufacturing Index fell to 56.5 in February from 58.4 in January, expanding for a seventh consecutive month, indicating factories are leading the U.S. economic recovery. The new orders index dropped to 59.5 from 65.9, and the production index fell to 58.4 from 66.2. The employment index rose to 56.1 from 53.3, the third month above 50, indicating that more firms are hiring than shedding workers. “Manufacturers are seemingly willing to hire where they have orders to support higher employment,” said Norbert Ore, chairman of the ISM survey committee. The prices paid index slipped to 67 from 70, showing that price pressures are high but easing.
Construction spending declined 0.6% as expected, at a seasonally adjusted annual rate of $884.1 billion in January. The decline in construction spending was led by a fall in private nonresidential construction spending, which more than offset a moderate increase in residential construction. Public construction spending also fell for the month, highlighting the continued fiscal tightening by state and local governments. December outlays were unrevised at a drop of 1.2%. November spending tumbled a revised 2.5%. Residential construction project spending in January increased 1.1% to $269.15 billion, after dropping a revised 2.6% in December.
Bernanke Makes Two-Year Treasury Notes Sweetest Spot. For the first time since at least 1980, a change in monetary policy may mean the difference between short- and long- term Treasury yields will widen rather than narrow. The threat of the Fed selling the $2.29 trillion in securities on its balance sheet, combined with record Treasury auctions, will keep longer-term yields higher. A steeper yield curve would boost borrowing costs for companies and home buyers while attracting money managers deterred by record-low rates. The Fed’s assets now consist of about $777 billion of Treasuries, $166 billion of agency debt and more than $1 trillion of mortgages. Policy makers debated in January how to shrink the balance sheet, with some pushing to sell assets in the near future. Bernanke and his colleagues agreed that the assets and banks’ excess cash will need to be reduced, and said the central bank should dispose of mortgage and related securities purchased to support banks when credit market seized up. When it starts selling, the supply of longer-term securities will increase.
How High Will Mortgage Rates Go? Fed Exit of Mortgage Purchase Program Will Push Rates Up, but They Probably Won’t Get Too Much Higher Too Quickly. This will lead to “heightened volatility in all the markets,” so if you’re a homebuyer, the rate you qualify for when you start shopping for a house could be significantly different than the rate you end up with by the time you sign your mortgage. As a result, locking in a rate makes a lot of sense. Just how high rates will go, however, and when they’ll start to move, isn’t yet clear. NAR says 30-year fixed rates are “rock bottom” and will probably jump to about 5.7% by year’s end. Fed Vice Chairman Donald Kohn said that any increase in rates is likely to be “modest” but added “that judgment is subject to considerable uncertainty.” Freddie Mac in late December said rates would hit 6% by the end of 2010. Bill Gross of Pimco believes that due to a rising interest rate environment in general, mortgage rates could settle anywhere between 6 to 6.5%.
Fed’s Kohn to Resign in June After 40-Year Career as a U.S. Central Banker Donald Kohn said he will leave the Federal Reserve at the end of his four-year term as vice chairman after 40 years at the central bank, where he helped Ben S. Bernanke and Alan Greenspan steer the U.S. through recessions and crises.
Lacker Calls Proposals to Weaken Fed Bank-Supervision Powers `Misguided’ Federal Reserve Bank of Richmond President Jeffrey Lacker said legislative proposals to strip the Fed of bank supervision powers are “misguided,” threatening to weaken the central bank’s ability to lend to financial institutions.
Tarullo Says Financial-Regulation Overhaul Must Reduce Systemic Risk Federal Reserve Governor Daniel Tarullo said an overhaul of financial regulation must “substantially” reduce risk in the system to be successful.
The Neighborhood Assistance Corp. of America’s marathon mortgage modification program has been running 24 hours a day. Thousands of homeowners received same day solutions having their mortgage payments permanently reduced by over $500 and many by over $1,000 a month often with interest rates reduced to 3% or 2% and sometimes a principal reduction. NACA has legally binding agreements with all the major lenders / servicers to achieve this. More than 100 Bank of America representatives, as well as many other lenders, are participating in the event.
Posted in HEADLINE NEWS, MORTGAGE NEWS, THE FED |
