Economic data surprises to upside

The March ISM services index was 1.4 pts above expectations at 55.4 and is up from 53 in Feb. It’s now at the highest level since May ’06. Overall Business Activity rose to 60 from 54.8. New Orders rose 7.3 pts to 62.3 to the most since Aug ’05. Backlogs rose almost 10 pts to back above 50. Employment remained below 50 but just by a touch as it rose 1.2 pts to 49.8. Export Orders rose 10.5 pts to 57.5, the highest since June ’07. Prices Paid rose 2.5 pts to 62.9 to the most since Oct ’08. 14 of the 18 industries surveyed reported growth with two reporting a contraction and the ISM said “comments are mostly positive about business conditions and the direction of the economy.” Separating the stock market from the economy, higher interest rates as a result of supply and better data will become the headwind at some point.

With the clock ticking on the home buying tax credit, Feb Pending Home Sales rose 8.2% m/o/m, well above the forecast of no change. The gain was led by the Midwest region and followed by the South and Northeast while the West saw a drop of 4.8%. The NAR chief economist said “anecdotally, we’re hearing about a rise of activity in recent weeks with ongoing reports in more markets, so the March data (today is Feb) could demonstrate additional improvement from buyers responding to the tax credit.” The other factor that will influence home buying activity in the seasonally strong spring season and ahead of the April 30th expiration of the tax credit (in addition to price), is the recent rise in mortgage rates. In Feb, the average 30 yr mortgage rate was 5.09%. Friday night after the sharp bond market selloff, it hit 5.23%, an 11 week high.

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