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March 1, 2002
A wave of remarkably good news for the economy has -- even more remarkably -- done no particular harm to mortgage rates, which are still holding in the high sixes.
There are some reasons for mortgages to stay about where they've been, wandering back and forth across the seven barrier, but a few more near-hits like this and one of 'em is going to get us.
As it is, the long end of the Treasury market has risen an eighth of a percent or more in yield from early-week lows, and the Dow has blown through 10,000. Credit and stock market fears have helped mortgages, and any relaxation in those fears will add to the discomfort in the credit markets brought by a recovering economy.
There were two authentic surprises in economic data: 4th quarter 2001 GDP was revised to a 1.4% gain, and the Institute for Supply Management (the re-named purchasing managers' association) reported a 54.7% index reading for February. Translated into English, the ISM finding supports the GDP revision: the ISM found the fourth straight month of growth for the overall economy, and the first growth for manufacturing in the last eighteen months.
Beauty is in the beholder. The stock market crowd is thrilled with the data, a view kin to Mark Twain's judgment of Richard Wagner's music ("It's better than it sounds."). However, the GDP number was clearly puffed by no-profit sales promotions which jacked consumer spending; and the ISM rebound follows a long, straight-down interlude. As rebounds go, it's about as high as the top of the splash generated by dropping a zero interest hubcap down a well.
There are reasons for economic concern beyond quibbling with pretty good news. Both measures of consumer confidence slid in February. An index of investment by businesses stayed deep in contraction, while a measure of confidence among executives failed to find any, the two contradicting economists' hopes for 2-3% growth later this year. Support will not be coming from the world's #3 and #2 economies: Germany remains stuck in recession (retail sales there have been flat for six years), and Japan is (still) sinking.
Testimony from the only economist who matters captured center stage, but was... bland? Should we worry about a credit crunch? "No." Should we worry about Japan? "No." Inflation? "1.5%." Growth in 2002? "2.5-3.0%." Plans to raise the Fed funds rate? Not the slightest suggestion.
Aside from an elegant rumination about businesses whose sole assets are conceptual, there was only one memorable line. After noting the "backup" in mortgage rates in November, The Man said: "But mortgage rates remain at low levels and should continue to underpin activity...."
Emphasis added, but it didn't take much. Peaceful, quiet, bland... damn good news.
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