What’s in the bag on the business of business?

This week’s mixed bag:

My friends in the mortgage industry tell me that the Federal Open Market Committee meeting held great significance for the home industry.  There is much news by commentators about this area, but the synopsis appears to be this. In the Federal Open Market Committee meeting, the Fed said they are going to ration out its commitment of mortgage backed security purchases through the first quarter of 2010. The Fed said it will end additional buying, but instead, a create a longer weaning off of the program. There was some speculation about the Fed increasing the amount of buying above the $1.25 trillion committed to, and last week’s statement is the Fed’s nice way of saying “no.” The Fed will not be buying more in quantity, but what it will do is attempt to provide a smoother transition to normal market conditions.

My friends are telling me that it is a given that once the Fed ceases its purchases, that interest rates will climb (perhaps significantly), The Fed’s decision also means that the Fed’s remaining purchases will all be lower in quantity, as the remaining allotment for purchases will be spread over a longer period of time – and additionally, will not necessarily be spread out as evenly as their past purchases – which could lead to more volatility for rates in the near term.

Staying on the home front, existing home sales and new home sales were reported slightly less than expected, but both reports continue to show signs of an improving housing market. The inventory of unsold existing homes fell to its lowest inventory level since April 2007, while the inventory of unsold new homes dropped to its lowest level since January 2007. While some of the decline in new home inventory may be due to builders constructing fewer homes – these reports indicate that the housing market is indeed showing signs of life.

What does all this mean for the world of business? That answer is a big unknown. Added to the potential volatility in rates is the news that durable goods orders fell in August 2.4% for the largest decline since January. There are several important economic reports due out this week. The jobs report is out Friday for September. This is a key measure to where we are because the unemployment rate for August jumped to the highest level in 26 years, at 9.7% from July’s 9.4%. This is more than double the rate of unemployment from just two years ago and significantly higher than the 5.9% average during the past 40 years. The Unemployment Rate portion of the Jobs Report is seen as more reliable than the job loss numbers. The consumer confidence numbers come out Tuesday, while Thursday brings the Fed’s favorite gauge of inflation, the Core Personal Consumption Expenditure (PCE) Index. Thursday will also bring another weekly Initial Jobless Claims Report, just ahead of the Labor Department’s big Jobs Report coming on Friday.

Business may have a better view of where it is by week’s end.

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