The bond market is continuing its sell-off this morning. Investors and traders are reacting again to information that is bad for rates, ignoring items that would have caused rates to move lower. The 10-year Treasury is +.057% with the rate at 4.947%.

This was one of the heaviest economic days in the year. The Employment Report and Income and Spending both occurred on the same day.

Probably the biggest item moving rates was a part of the Employment Report. The other biggest item was within the Income and Spending report.

Let’s look first at the Employment Situation Report. As we have said before, this report contains four sections. Two are important, two are not. Two parts of the Employment Situation Report were above expectations; one was very important.

The Payrolls number is one of the most important in any given month as was at 157k. The market was looking for 130k to 140k. (The ADP Job Report is not proving to be very predictive.)

The other higher than forecast number was the Average Workweek; which is not seen as very significant. It was forecast to be 33.8 across the board. It was 33.9.

The other two parts were in expectations. Unemployment Rate was anticipated at 4.5% across the board, and the Labor Department reported it at 4.5%.

Hourly Earnings – not very important – was supposed to be +0.3% to +0.4% and was +0.3%.

The other item moving rates is a very important detail within the Personal Income and Spending Report. The core-PCE – which is the FED’s favorite measure of inflation – was predicted to be +0.2%. That +0.2% is at the highest end of the target the FED wants to attain. The core-PCE was reported +0.5%, which is definitely spooking the market.

Personal Spending was +0.4% within the +0.4% to +0.6% range of expectations.

Personal Income, left by itself would have moved rates lower today, it was below the forecast of +0.3% to +0.6% by actually being -0.1%. (The Main Stream Media will continue in its 2.2% template and highlight this number, while ignoring job growth.)

ISM was as foretold, at 55.0. The 54.0 to 55.0.

Michigan Consumer Sentiment was supposed to come in at 88.0 to 88.7. It was right in those targets and was reported by the U of Mich. at 88.3.

The final number we will look at today is the Pending Home Sales number. It will be a disappointment for many readers of this blog. It was -3.2%, below the expected 0.0%. But, at least it was higher than last month’s -4.9%.

SHORT-TERM OUTLOOK [01 June 2007]

Next week will be much quieter than this last week was. Monday will hold Factory Orders. Tuesday will see ISM Services. Wednesday will have the quarterly Productivity-Revised. The only major item on Thursday is the Wholesale Inventories. Finally, Friday will have the Trade Balance number.

Steve Boxmeyer [612] 799 – 6858
Steve@LendWithIntegrity.com