All the scratchin’ and itchin’ out there doesn’t have anything to do with bug bites. Nope, markets have the burr-under-the-saddle, sat-on-a-tack fidgets because nobody can figure out what happened to the economy in June.

All the scratchin’ and itchin’ out there doesn’t have anything to do with bug bites. Nope, markets have the burr-under-the-saddle, sat-on-a-tack fidgets because nobody can figure out what happened to the economy in June.

The people can’t figure it out, but the bond market says that it can, and has: the 10-year T-note fell to 4.36 percent today, down .12 percent overnight to a three-month low. The lowest-fee mortgage packages are now crossing under 6 percent, quotes appearing at 5.875 percent, as the whole “long end” of the yield curve has dropped a half percent from the peak of the Fed fright one month ago.

The economic optimists (many, if not most, associated with the stock market) insist that June was just a breather, a healthy pause after a screaming spring.

They dismiss the decline in June industrial production (off .3 percent versus expectations of a .1 percent gain) as a normal retrenchment magnified by a drop in utility production in a cool month. They say the 1.1 percent decline in retail sales was due to automakers backing off incentives, and to cool weather dampening ardor for summer clothes. Arch-boosters swore that the rest of the retail decline was traceable to tens of millions of people taking time out from shopping to watch the Reagan funeral.        

The University of Michigan consumer confidence reading stayed in the mid-90s, and surely, if there were really anything wrong with the economy or job market, confidence would fade. Statisticians made a month-long hash of unemployment claims, but there is no new anecdotal weakness in business hiring plans.

The central argument for optimism, as one guy said: “There is no reason for the economy to poop out here.”

Others see things other ways. Business inventories have suddenly bloated, simultaneous with reduced sales projections, a combination that almost guarantees a further slowdown in new production. The industrial production number may not have been so bad, and distorted by utilities, but there is no pleasant explanation for a decline in the percent of capacity in use. The 77.6 percent in use in May was expected to continue a brisk rise toward a healthy 80 percent, at least to 77.8 percent in June, and instead flopped to 77.2 percent.

Consumer confidence numbers do track jobs, but they have also tracked Iraq, confidence rising and falling in inverse proportion to American casualties. The newly invisible Donald Rumsfeld would hardly announce such a thing, but it appears to me that U.S. forces have pulled back from offensive operations – maybe to give the new government a chance, but for whatever reason keeping American casualties down.

Energy prices are still high, chewing into our economy, and it should be clear by now that the altitude is not mere speculation or terror mongering. Global production capacity is matched by current demand, and nothing but high or higher prices can stem that demand – nothing except a general economic slowdown.

Economic skeptics have pointed for two years to the moment at which all the tax-cut and low-interest-rate incentives would be in place, and wondered if that moment would not be a perfect spot for the economy to poop out. The moment? Just after the last of the oversized tax refunds were received in May.

The optimists and skeptics agree on only one thing: this week’s PPI and CPI data show that inflation is not running away from the Fed. The core rates are behaving very well, just below 2 percent annualized.

We won’t get definitive July data until the end of the first week of August, but this enormous June rally in bonds is a statement in itself. A 10-year T-note below 4.5 percent says the Fed’s pace will be “measured” with the 100-foot tape, not the .25 percent-per-meeting ruler, and a Fed funds rate higher than 2 percent in a year or more is not on any bond trader’s worry-screen.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at


What’s your opinion? Send your Letter to the Editor to

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription