The purchase of U.S. Treasury bonds was slowed by successful auctions of billions of dollars in government debt last week as the Treasury Department continues to sell bonds to finance its multiple programs.
Nevertheless, with bleak economic news making the rounds and less-than-rosy corporate outlooks, the demand for Treasuries remained strong. Investors — both private and corporate — keep coming back to the safe haven of U.S. Treasuries, because it is the one safe place to put their money. In fact, according to a Lehman Brothers index, this year Treasuries have provided a 14.3% return on investment, while the S&P 500 is down 41%. No wonder Treasury prices are up and yields, which move inversely to price, are down — but off record lows.
The trend continued Friday, although trading was thin. Treasuries are attracting buyers and economists expect this to continue for six months, possibly longer.
There was more bad news on home sales in November. In fact, it was worse than expected. Tuesday’s existing home sales repot showed an 8.6% decline to an annualized rate of 4.49 million units — with 45% of those sales on distressed properties. Inventories rose to 4.2 million units, representing an 11.2-month supply. Home prices fell to a median of $181,300, putting them back at February 2004 levels.
New home sales dipped 2.9% to an annual rate of 407,000. Surprisingly, the median sale price rose 0.9% to $220,400. However, this report is subject to massive revisions over the next six months.
The University of Michigan/Reuters’ final survey of consumer sentiment survey rose to 60.1 from 59.1 two weeks ago. The record plunge in inflation data was largely responsible. Respondents also mentioned that lower gas prices made them optimistic. In a separate report, the final revision of 3rdquarter gross national product (GDP) came in at -0.5%, in line with expectations.
Wednesday’s news wasn’t much better. First-time jobless claims rose by 30,000 to 586,000 — the highest level since November 1982. The four-week average, which smoothes out peaks and valleys, also rose to 558,000. The good news was that continued claims, those collecting benefits for more than one week, dipped to 4.37 million — still unacceptably high.
Durable goods orders fell by 1% in November. Nevertheless, that was a big improvement over October’s 8.4% decline — and it beat analysts’ predictions. The one positive number in the report was the 4.7% increase in capital expenditures (business investments). They had declined during the previous three months.
Personal income/spending for November was down, but the Fed’s favorite inflation indicator, the PCE, rose by only 1% over the past year. That’s within the Fed’s 1%-2% comfort zone. But consumer spending, which makes up two-thirds of the GDP, fell 0.6% in November versus a 0.1% decline in October. Economists say that falling prices factored into the decline. Personal income dipped 0.2% in November versus a 0.1% increase in October.
The big drop in mortgage rates during the week ended Dec. 19 brought out homeowners wanting to refinance. Refinances rose 62.2%, according to the Mortgage Bankers Association, and accounted for 83% of mortgage activity. Purchase applications were up 10.6%.
If there’s been a week in recent history with fewer reports than this one, we can’t remember it. Most of the typical “last week of the month” reports were pushed back to last week, and “first week” reports, like the employment report for December, were moved ahead. That leaves us the Institute of Supply Management (ISM) index on manufacturing conditions for December, which will be released Friday.
The ISM index, composed of surveys of 300 industrial companies, is used to predict future conditions in each of its nine components, including new orders, production, employment, etc. The ISM index is a key manufacturing indicator, due to its current data.