4th Quarter GDP fell 3.8%, the slowest quarterly pace in 27 years. The number however, was better than market expectations of minus 5.5%. The drop was due in large part to another sharp decline in consumer spending. Business investment was also down, falling 19.1%.
The Employment Cost Index was also released, up .5% and up 2.6% for the year ending 2008, the slowest pace since 1975. Month-end buying is helping the long end of the yield curve and helping mortgage-backed securities for that matter as current coupon FNMA/GNMA are up 2 to 3/32’s.
Just released, the Chicago Purchasing Mgrs report fell 1.8 points to 33.3. A reading above 50 signals expansion while a print below 50 points to business contraction. The production component within this index was an eye-opener, falling 29.7% — the worst in nearly 30 years.
The Fed has been in the market as well, purchasing 1.7 billion of GSE paper (MBS). Not much, but it is supportive for mortgage pricing and rates. Technically, the buying this morning has approached the overhead resistance at the 2.75% yield mark where sellers re-entered. Yesterday, that level was supported, but once taken out (when we traded to 2.90%), the level now becomes resistance.
The response (selling) tells you that the bears are still in control, but very close to the channel bottom at 2.93%. Given stocks are floundering, off 93 on the Dow, and the economy is still on life support, expect mortgage rates and pricing to hold steady (at current levels) and try to improve as we enter a new month.
