Dorchester Commercial Real Estate

A slew of disappointing economic reports rallied U.S. Treasury securities on Tuesday, sending prices climbing and yields, which move in the opposite direction of prices, diving. Although the revised Gross Domestic Product, or GDP, met analysts' expectations, an additional trio of reports missed forecasts and encouraged bond traders to believe the Fed might relax its rate-hike efforts. Today's decline in Treasury yields has not yet impacted mortgage rates, which remain near previous levels.

Fourth-quarter gross domestic product was revised upward to 1.6 percent from the advance reading of 1.1 percent. The increase was in line with analysts' expectations, but far short of the final third-quarter number showing GDP galloping along at a 4.1-percent clip. Part of the decline is blamed on the aftereffects of Hurricane Katrina, which dented auto sales and other economic activity along the Gulf Coast.

Other reports released leaned toward the downside. Existing home sales in January fell 2.8 percent to an annual rate of 6.56 million -- the lowest level in two years. Once again Katrina played a role, with housing sales in the affected areas down 40 percent from one year ago. The median sales price rose 11.6 percent to $211,000, but inventories rose, too - up 2.4 percent. This translates to a stock of homes that will take 5.3 months to sell, the largest supply since August 1998.

Consumer confidence in February turned sour, according to the Conference Board. Confidence plunged to 101.7 from 106.8 the previous month, which was far below analysts' expectations for a 104.5 reading. Although consumers are satisfied with their present situations - as satisfied as they've been in four-and-a-half years - future expectations hit their lowest level since April 2003. Concerns about income that doesn't seem to be rising, prices that are rising and availability of jobs weighed heavily on those surveyed.

And finally, the Chicago Purchasing Managers Institute index of February business conditions disappointed, tumbling to 54.9 from 58.5 in January. Expectations were for an increase to 58.6. Prices paid, an inflation indicator, fell; as did new orders, but the employment component edged up.

Stocks walloped by economic news and Google

Signs of a slowing economy and a drop in consumer confidence sent the equity markets plummeting, and comments from Google's CFO, George Reyes, added to the decline. The three major stock indexes lost close to 1 percent each, although on the year stocks have posted their best two-month gains since 1998.

In what appeared to be an offhand comment, the CFO of Google, the search engine giant, said the company's growth is slowing and it would have to explore other options to increase revenue. Shares of Google declined sharply, sending negative vibrations throughout Wall Street. Google lost 7 percent on the session, which was an improvement over the 13-percent loss suffered immediately after the statement. Other Internet stocks such as Yahoo!, eBay and Earthlink were brought down as well.

Disappointing numbers on existing home sales put pressure on home builders and sent the Dow Jones home construction index down by more than 2 percent. Biotechs also had a tough day, and since many of them trade on Nasdaq, that index fell, too.

Widespread losses, rather than a couple of stocks with steep declines, hurt the Dow Jones industrials. Only three Dow components closed in positive territory, led by GM, which added 1 percent. DuPont and Intel were the other two that closed on the plus side. Procter & Gamble sustained a 2.3 percent loss - the biggest in the Dow - but 13 others were down by more than 1 percent.

As of 4 p.m., EST:

The Dow Jones industrial index closed down 104.14 points (-0.94 percent) to 10,993.41; the Nasdaq composite lost 25.79 points (-1.12 percent) to 2,281.39, and the Standard & Poor's 500 index fell 13.46 points (-1.04 percent) to 1,280.66.

The 30-year Treasury bond closed up 24/32 in price with the yield falling to 4.50 percent, from 4.54 percent on Monday.

The 10-year Treasury note closed up 12/32 in price with the yield falling to 4.55 percent, from 4.59 percent on Monday.

The five-year Treasury note closed up 7/32 price with the yield falling to 4.60 percent, from 4.65 percent on Monday.

The two-year Treasury note closed up 3/32 in price with the yield falling to 4.68 percent, from 4.73 percent on Monday.

At 4 p.m. EST, average mortgage rates (zero discount points) based on rates collected nationwide were:

The 30-year conventional fixed-rate mortgage was at 5.969 percent, down from 5.978 percent on Monday.

The 15-year conventional fixed-rate mortgage was at 5.591 percent, up from 5.588 percent on Monday.

Coming up:

March begins with two typical first-of-the-month reports and personal incomes/outlays for January. This economic report has implications for the Treasury markets as it contains one of the Fed's favored inflation indicators -- personal consumption expenditures. Analysts are expecting incomes to rise by 0.6 percent, while spending is forecast to increase 1 percent. These predictions are higher than the December results that showed incomes up 0.4 percent and spending rising 0.9 percent.

The Institute for Supply Management's index on February manufacturing conditions is expected to hit 55.9, which would be a slight increase from the 54.8 posted in January. This report uses recent data to profile the manufacturing sector, a key component of the national economy.

Construction spending for January also is on tap and expected to post a healthy 0.8 percent increase. This would be a slight decline from the 1-percent increase recorded in December. This report usually does not have great significance, but it might be more closely watched in light of the disappointing housing sales reported this week. The decline in Treasury yields could affect mortgage rates - especially those rate-setters who are waffling between edging higher or lower. Overnight and into Wednesday it is possible that mortgage lenders could edge rates down on some products.

Carolyn Siegel

Carolyn@interest.com

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