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August 25, 1995
Mortgage rates hit a 45-day low this morning, down to roughly 8.125% for thirty years at "zero and zero" prices.
Since early July, economic data have been dead neutral. A weakish report here, a middling strong one there; the overall trend better than the springtime recession scare, but no more than modest growth.
Until yesterday. The report du jour was durable goods orders in July, which was supposed to show a rise of 0.7%, another datum in the boring middle. When the economy goes through a trendless phase, it's pure guesswork as to which way the trend will break, and when.
9:00am EST Thursday, scrolling on CRTs: "July Durables down 1.7%, details followingŠ" Bonds react well, instantly, but with some reservation. Maybe there is some weird quirk: a plant closing, a strike, the Pentagon decided not to buy anything at all in July, or the Boeing sales force spent the month at the beach.
A few minutes after the "flash" report, CRTs begin to scroll the "internals": 75% of the drop in orders was due to an abrupt decline in demand for cars. An aberration, there? Next line: "Non-aircraft, non-defense capital goods down 6.6%Š."
That did it. Nothing weird here; the economy is soggy after all. Bonds raced to their best single day in two months. The trendline broke, and it broke weak. Consensus: we may not be as far out of the recession woods as we thought.
A single datum does not make a trend, but the durables report puts a whole new edge on Friday, September 1. If there is a single day in the rest of 1995 which can trigger a wild interest rate ride -- one just like May and June -- it's next Friday.
At 6:30am Colorado time the Labor Department will dump non-farm payrolls for August, and the internals (length of workweek, overtime hours, average wagesŠ) will follow a few minutes later. At 8:00am, the National Association of Purchasing Managers will unload its August index.
Three accidents conspire to magnify these reports. First, long trendless periods tend to reach explosive conclusions. Second, the labor and NAPM reports are easily the most important released each month, and arrive on the same day only once in a year or two. Markets handle surprises better when there are a couple of days to cool off between big reports. Third, next Friday is the Friday before Labor Day Weekend.
Markets are especially skittish before long weekends: more can go wrong in three days than in two.
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