Florida Mortgage Rates – Morning Report

by Florida's #1 Mortgage Planner on June 27, 2008

Locking Stance:  LOCKING     Mortgage Bonds:   6bp

I was unable to get my evening report out as I went through San Juan as I had expected, but things ended fairly tamely going into today with bonds ending the day only up 13bp.  All eyes looked to today’s data release for guidance and things just didn’t move much overall.

That data was released just a few minutes ago and were rather unexpected.  Personal Spending came in higher than expectations (0.8% versus 0.6%).  Personal Income came in way better than expectations, throwing things askew a bit (1.9% versus 0.4%).  And what about inflation in general?  Core PCE (excludes food and energy) came in slightly below expectations (0.1% versus 0.2%) for May and was only 2.1% year over year.  PCE itself was up 0.8% in May.

But take a deeper look into some of these numbers and let’s get down to reality.  Personal income jumped mostly due to the insurance payments from the flood victims.  Disposable Personal Income jumped dramatically, up 5.7%, but that was due to the "economic stimulus" tax rebates, so take it with a grain of salt.  Personal Spending, after adjustments for the rise in consumer prices, was the most in nine months, though it too is likely due to the rebate checks.

So, the numbers ended up skewed and after all is digested, bonds may yet drop even though the numbers "look good" on the surface.  Personally, I am concerned about the Real PCE, which is reported by the BEA below.

Real PCE — PCE adjusted to remove price changes — increased 0.4 percent in May, compared with an increase of 0.2 percent in April. Purchases of durable goods increased 0.1 percent, compared with an increase of less than 0.1 percent. Purchases of nondurable goods increased 0.4 percent in May, the same increase as in April. Purchases of services increased 0.4 percent in May, compared with an increase of 0.1 percent in April.

Looking at PCE at this level is still showing inflation growth with every level increasing (except for nondurable goods which was the same).  The fact the Real PCE doubled from last month makes me question where inflation is headed, but then again, oil is hitting new heights, breaking $142, so higher inflation is likely the final direction still.

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