While 315,000 is better than 307,000 the fact is that both are poor. Still lots of excess inventory created during the housing bubble to be sold, and 2011 looks to be the worst year in history for sales. On the optimistic side: this is the best since April, builder confidence is up, and new construction jumped last month.

Durable Goods Orders
-DG Orders, Month/Month change +3.8%
-DG Orders, Year/Year Change +12.1%
-Ex-transportation, Month/Month +0.3%
-Ex-transportation, Year/Year +7.2%
-Much of the overall gain is in aircraft

Personal Income and Spending
Personal Income, Month/Month +0.1 %
Consumer Spending, Month/Month +0.1 %
Core PCE price index, Month/Month +0.1 %
Core PCE price index, Year/Year 1.7 %

PCE is a measure of inflation geared for the consumer, and the Core numbers above exclude volatile food and energy prices. Real (inflation adjusted) wages are declining. The economy continues to leave the average family behind. In fact, a good part of the increase in Personal Income this year has been from the decline in Social Security contributions, money that has to be made up from somewhere at some time in the future.

Housing
-New Home Sales (seasonally adjusted annual rate) 313,000.
-Previous was 295,000. Consensus was 302,000.

MBA Mortgage Applications
-Purchase Index, Week/Week +6.4 %
-Refinance Index, Week/Week +4.4 %
-Composite Index, Week/Week +4.9 %
-The is week/week data and the previous week had a holiday making this data of minimal value.

Durable Goods Orders
-New Orders, Month/Month: -0.1%
-New Orders, Year/Year: 12.3%
-Ex-transportation, Month/Month: -0.1%
-Ex-transportation, Year/Year: +7.8%
-Mixed message here. Year/Year is good. Month/month is weak.

GDP Preview
GDP 3rd estimate is tomorrow. This is called the “final estimate” even though it can get revised for the next 6 years. With the data this weak the discretionary “corrections” made by BEA may be overwhelming the actual data. If this GDP estimate is weaker than expectation then we may see Treasuries rally. Consensus is for the +1.0% 2nd estimate to be revised upward to about 1.2%.

FHFA Home Price Index (June)
-Month/Month: +0.9%
-Year/Year: -4.3%
-This is only homes with Fannie/Freddie loans
-Yesterday’s fundamentals indicated geographic shift in home sales with the Northeast and West declining and the South gaining. But y’all knew that already.

Durable Goods Orders (July)
-New Orders – Month/Month: 4.0%
-New Orders – Year/Year: 9.2%
-Ex-transportation – Month/Month: 0.7%
-Ex-transportation – Year/Year: 9.6%
-This is a positive report.
-Month/Month change in overall vs. ex-trans indicated strength in the automotive sector.

Durable Goods Orders:
- Orders for equipment intended to last 3+ years
- New Orders May 1.9%, vs. -2.7 April
- New Orders since May 2010 9.0%
- Ex-transportation May 0.6%
- Ex-transportation since May 2010 7.2%
- Gains in durables were broad-based

Home Prices:
FHFA House Price Index was -0.3% in March (these are prices on homes that have loans backed by Fannie & Freddie)

Durable Goods Orders:
- New Orders – Month/Month change -3.6 %
- New Orders – Year/Year Change +5.3 %
- Ex-transportation – Month/Month -1.5 %
- Ex-transportation – Year/Year +6.7 %

Durable Goods Orders have long lead times. This data says to me that manufacturers were getting ahead of themselves and cut back on durables in April. Economic recovery is perceived as not being as strong as a few months ago. Relevant thereto, 2nd look GDP for 1Q2011 is tomorrow.

Also today we’ve had 3 other data points: (1) Jobless Claims dropped by 22k, from 413,000 down to 391,000. Continuing Claims also dropped. (2) Durable Goods were +2.7% in January, versus a drop of .4% in December. (3) January sales of new single family houses were down 12.6% from previous month and down 18.6% from January 2010, with an average sales price of $260,300. The seasonally adjusted estimate of new houses for sale at the end of January was 188,000. This represents a supply of 7.9 months at the current sales rate.

Today rates dropped back down after weaker jobs, home sales and manufacturing data, and also a strong appetite for bonds in general—rates are tied to mortgage bonds and rates drop when bond prices rise on buying. Here’s a quick summary of the day’s data: (1) jobless claims for the week increased 51,000 to 454,000, (2) manufacturer orders for durable goods lasting more than 3 years were down 2.5%, (3) Pending Home Sales, a forward-looking indicator, increased 2% based on contracts signed in December but decreased 4.2% since December 2009. The data reflects contracts and not closings, which normally occur with a lag time of one or two months, and (4) a well-received $29b auction of new 7yr Treasury notes that put all bond markets in a buying mood.

Housing Bust vs. Great Depression
Here is a very interesting spin on bold programs. During the Great Depression in the 1930′s, HOLC, another mortgage acronym that has been forgotten, was created to refinance housing debt. It did not eliminate all foreclosures, but certainly helped.

Quantitative Easing Comments From Mortgage Trenches
Here are some of the comments from yesterday’s write-up on quantitative easing, they’re always appreciated.

“I take serious exception with one of your lines: ‘As I mentioned recently, when the US government, who prints money, wants inflation, it is not a wise strategy to bet against them.’ I am not arguing against the point, but I think that it’s an extremely relevant fact that monetary policy and the printing of money is done by the Fed, a private corporation, owned by the TBTF banks and private members, and that the printing of money is not done by the government. I fundamentally believe that QEII, the printing of money is a disastrous idea. I know that my radical views won’t make your commentary…”

“One of the issues I have with the QE notion is that there already is a ton of excess money on the system. There are $1 trillion in excess bank reserves parked at the Fed. Lack of confidence on the part of business and consumers makes folks less willing to borrow (and spend). The effects of QE 2 will be a deflated dollar (and the ill-conceived notion that somehow the only effect will be to lower the trade gap) and perhaps inflation. One could make a case that the only this QE 2 is doing is monetizing debt since there is no apparent way to service it.”

“QEII is a euphemism for printing money out of thin air….i.e. inflation. But terms like “inflation” and “printing money out of thin air” aren’t politically palatable any longer, so creative semantics takes over and we get “quantitative easing”…..just vague and mystic enough for the public and financial press to defer to the Fed’s delicate genius and refrain from opposing such blatant intrusions on our economic liberties as Americans. I’m not sure what “adequate money supply” means exactly. Adequate to whom? I would think markets would best determine the money supply. Inflation is the increase in money supply, and rising prices are the consequence of the inflation that’s already happened. The money supply has already been inflated substantially, and rising prices have followed, and will follow. Commodities and many foreign currencies are at all-time highs against the dollar. QEII means a further erosion of US consumer purchasing power, and lower standards of living…and possible hyperinflation. Now Geithner is at the G20 lecturing the world’s healthier economies. I heard one commentator say that’s like having an F student lecture the straight-A student about how the A student shouldn’t study so much because they are making the F student look bad.”

Consumer Confidence Rose Slightly
Are you feeling more confident? Even if you’re not, whoever is surveyed by the Conference Board is – their Consumer Confidence Index rose slightly in October to 50.2 from 48.6, but remained at its second lowest level since February. The low level remains a concern for the spending outlook. Also recall that yesterday’s Case-Schiller home price index fell -0.3% in seasonally-adjusted terms in August, the second consecutive monthly decline. Nearly all 20 metropolitan regions of the country showed sequential declines in August-with the exceptions of New York and Washington, D.C. which were flat. On the “good news” side, housing affordability is extremely high according to NAR. And it may seem that commercial banks are easing lending standards for prime mortgage borrowers, per the August Senior Loan Officers’ Survey compiled by the Federal Reserve showing it’s first loosening in underwriting standards since 2006.

Durable Goods Orders Better Than Expected
Tuesday $3.5 billion in MBS’s were sold, and prices ended the day worse by .375-.50. The mortgage supply is certainly helping to push prices down and rates higher, and on the Treasury side the 10-year Treasury hit its highest yield in over a month. Always easily spooked, the markets seem to be focusing on the possibility that next week’s Fed announcement will be “disappointingly incremental”. We’ve had Durable Goods – +3.3% and revised higher last month, ex-defense +2.9%, pretty much better than expected. We still have a home sales number ahead of us, along with a $35 billion 5-yr auction. With all of this, the 10-yr yield has moved up to 2.69% and 30-yr mortgage prices are worse between .250-.375.

Impact of Loan Modifications On Mortgage Bonds
Should modified FHA or VA loans be put into a generic Ginnie Mae security with other, non-modified loans? Last year Ginnie Mae began collecting several new data elements on the “Schedule of Pooled Mortgages”, and although entering them then was not mandatory, it will be starting in February. “In order to improve the quality of data being disclosed, Ginnie Mae is changing its requirements for loan purpose, credit score, and loan-to-value ratio from “optional” fields to “required” fields. Failure to submit the required data elements at pooling will result in a failed pool. The loan purpose codes have been changed, with “purchase” and “refinance” remaining, but with the addition of “Loan Modification – HAMP” and “Loan Modification – Non-HAMP”. Perhaps the enhanced disclosure will calm investor concerns about modified loan prepayments, but the goal seems to be keeping modified loans TBA-eligible.

WalMart Economic Indicator
One anecdotal economic indicator comes from WalMart’s head of U.S. operations Bill Simon. When asked about their efforts to serve customers whose spending around payday has been volatile, he said:

“And you need not go further than one of our stores on midnight at the end of the month. And it’s real interesting to watch, about 11PM, customers start to come in and shop, fill their grocery basket with basic items, baby formula, milk, bread, eggs, and continue to shop and mill about the store until midnight, when government electronic benefits cards get activated and then the checkout starts and occurs. And our sales for those first few hours on the first of the month are substantially and significantly higher. And if you really think about it, the only reason somebody gets out in the middle of the night and buys baby formula is that they need it, and they’ve been waiting for it. Otherwise, we are open 24 hours – come at 5 a.m., come at 7 a.m., come at 10 a.m. But if you are there at midnight, you are there for a reason.”

Commercial Real Estate Recovery?
There has been some recent news about the commercial mortgage market, and some big firms think it’s time to start securitizing those mortgages again. J.P. Morgan Chase has taken an early lead in the race among big banks to revive the commercial mortgage backed securities (CMBS) business, moving ahead of Goldman Sachs, Wells Fargo, Bank of America, and Morgan Stanley. A WSJ report says they are all ramping up or rebuilding CMBS operations. Wall Street is expected to sell about $10 billion of CMBS this year, versus $230 billion at the peak in 2007 but “way up” from virtually $0 over the last two years. Current deals have fewer loans and tranches, and are more “investor-friendly” by being less confusing. The pickup in the market is good news for owners and developers, along with the banks that collect the fees for securitizing the loans.

Friday Market Roundup
Thursday mortgage prices lagged the initial strong improvement in Treasuries as the yield on the 10-yr neared 2.50%. Not only do we not have the Fed buying MBS’s, but buyers seem a little reluctant at these price levels for fear of refinancing, and $2.8 billion seemed a little too much in MBS’s for the market. Current rate sheet mortgage prices ended the day worse by about .125 and the 10-yr at 2.56% after the better-than-expected Existing Home numbers. This morning, besides New Home Sales, we already had Durable Goods, and most economists believe that the manufacturing recovery that fueled economic growth a little more than a year ago is losing steam as global demand slows and the inventory cycle continues to wind down. Advance orders for durable goods rose only 0.3 percent in July, which was less than expected. Sure enough, Durable Goods were -1.3%, worse than expected, although ex-transportation it was up for the month, and there were also some back-month revisions. Right after the number we find the 10-yr yield up to 2.57% and mortgage prices are worse .125-.250.

Friday Humor … Job Descriptions:
1. A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain.

2. An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.

3. A statistician is someone who is good with numbers but lacks the personality to be an accountant.

4. An actuary is someone who brings a fake bomb on a plane, because that decreases the chances that there will be another bomb on the plane.

5. A programmer is someone who solves a problem you didn’t know you had in a way you don’t understand.

6. A mathematician is like a blind man in a dark room looking for a black cat that isn’t there.

7. A topologist is someone who doesn’t know the difference between a coffee cup and doughnut.

8. A lawyer is a person who writes a 10,000-word document and calls it a “brief.”

9. A psychologist is someone who watches everyone else when a beautiful girl enters the room.

10. A professor is one who talks in someone else’s sleep.

11. A consultant is someone who takes the watch off your wrist and tells you the time.

12. A committee is a body that keeps minutes and wastes hours.