Last week ended on positive note for mortgage backed securities and mortgage rates. As stock indexes fell, market participants re-allocated portfolios from risky assets to safer investments, resulting in added demand for government AAA rated fixed income securities. The benchmark 10 yr Treasury note moved back under 3.40% and MBS closed near their best levels in the past few weeks. Most lenders repriced for the better.
This morning we had a several economic reports hit the news wires. First out was a read on the manufacturing sector with the ISM Manufacturing Index.  The Institute for Supply Management surveys more than 300 manufacturering executives across the country on the strength of business conditions.  Readings above 50 indicate expansion while readings below 50 indicate contraction.   Since March of this year this report has consistently shown conditions improving with August’s report moving above 50 for the first time since January 2008. Today’s report indicates continued growth in the manufacturing sector, with a higher than expected reading of 55.7.
Next, the U.S. Department of Commerce released the monthly construction spending report which simply gives us a reading on whether construction spending increased or decreased. Construction spending for September (2 month lag) came in higher than expected, posting a monthly increase of 0.8% vs a 0.2% decline.  Offsetting this positive report was last month’s numbers were revised much worse from an initially reported 0.8% gain to a 0.1% decline. Increased spending on construction should lead to additional construction jobs giving consumers more income that can be spent into the economy. Secondly, when a new building, residential or non residential, is completed there are many items that need to be purchased such as flooring, window treatments and furniture. This increased spending could lead to higher corporate profits, so the stock market likes to see stable growth in construction.