Much of the optimism about the pace or economic recovery evaporated last week, as economic news turned mostly sour. Consumer confidence plunged, and both new, and existing, home sales slowed considerably. While mortgage rates moved upward in last week’s Freddie Mac survey, they may begin trending downward if economic news this week continues to point to a stuttering recovery.

This week brings us the usual cascade of first-of-the-month data, with very important insight into manufacturing and employment. While GDP was adjusted upward last week, most of the increase was due to inventory-related adjustments. If the ISM Manufacturing Survey comes in below 55.0, w could see mortgage rates begin the week on a decidedly downward bent as traders begin worry about a manufacturing slowdown. However, if the ISM shows any improvement, rates will flatten, or perhaps even move slightly upward. Friday’s employment report will be hugely influential as usual. If we get an unexpected month of job creation we could see rates moving back upward next week.

Graph Courtesy from NY Times in an article by Bob Tedeschi February 24, 2010.  Data provided by Jeff Carpenter, Director of Finance, GFI Mortgage Bankers, Inc.

Last week the Federal Reserve took center stage by raising its discount rate: the rate at which banks can borrow money directly from the Federal Reserve. While this move has very little immediate impact, the increase was widely viewed as a symbolic first step in beginning to remove the emergency measures put into place during this deep recession. The Fed’s meeting minutes also provided some more insight into future Fed moves. In addition to letting certain programs expire as planned, the Fed will create some new tools that will enable it to “mop up” excess cash in the market. These new tools, in conjunction with its primary method of adjusting the Fed Funds rate, will be targeted at keeping inflationary pressure under control.

This week, and coming weeks, could begin to see mortgage rates become more volatile as the market digests everything coming out of the Fed. We’ll also get new and existing home sales data this week. With housing and employment as the weakest link, any positive news could push rates upward.

Graph Courtesy from NY Times in an article by Bob Tedeschi February 17, 2010. Data provided by Jeff Carpenter, Director of Finance, GFI Mortgage Bankers, Inc.

According to comments this last weekend by Treasury Secretary Timothy Geithner the risk that the economy will slip back into recession is lower now than at any time in the past year. While the probability of a “double-dip recession” may be unlikely,  Geithner believes the current recovery is likely to be very uneven. Some evidence of this was certainly present in last week’s ISM Indices. The services index managed to stay above 50, indicating a slight amount of growth in service industries. while the manufacturing index bolted to its highest level since 2004. While the Labor Department employment data did show signs of an improving labor market, other measures released last week were not as positive. Overall, we are at a point where mortgage rates might slip slightly, but the risk of a quick upward movement continues to grow.

This week has a bit less economic data than last week, but with Retail Sales data due, we could see rates moving upward, especially if sales come in stronger than most analvsts are predicting.

Graph Courtesy from NY Times in an article by Bob Tedeschi January 28, 2010. Data provided by Jeff Carpenter, Director of Finance, GFI Mortgage Bankers, Inc.

Last week saw mortgage rates sliding downward, as a few big concerns began weighing heavily on the market. Economic news continues to highlight a very muted recovery, but fears of a double-dip recession were fanned by events in Washington. While bank-bashing has become a popular pastime, the Obama administration took it one step further with the proposal of a tax structure that would hit all large banks.  Regardless of one’s opinion of banks or the tax, it is very likely that business and consumers will ultimately bear this new tax. To compound the market’s concerns, uncertainty surrounding the reappointment of Fed Chair Bernanke stoked anxiety.  A failed confirmation could easily lead to months of political bickering, dragging the search for a successor on for many months.

This week is a huge week for markets.  In addition to the political concerns, the Fed meets again with analysts ready to dissect its policy announcement looking for clues of future Fed moves. With GDP data, Consumer Confidence. and slew of housing data on tap. rates could move either way.

Graph Courtesy from NY Times in an article by Bob Tedeschi January 14, 2010.  Data provided by Jeff Carpenter, Director of Finance, GFI Mortgage Bankers, Inc.

Graph Courtesy from NY Times in an article by Bob Tedeschi January 14, 2010.  Data provided by Jeff Carpenter, Director of Finance, GFI Mortgage Bankers, Inc.