Interest rates drop on disappointing reports from manufacturing sector

A big sell-off in stocks, precipitated by a lower-than-expected first quarter GDP, weak earnings reports and a bit of profit taking, sent money into U.S. Treasury securities.

A shift in focus from earnings, which were largely positive, to economic data, which has been disappointing for the most part, has kept upward pressure on Treasury prices. The effect was to ease pressure on mortgage rates, which decreased this week.

Mortgage applications fell during the week ended April 25, making it the sixth straight week of declines. This week's dip in rates could, however, spur a new wave of refis. The 30-year, fixed-rate mortgage fell to just below 5.50 percent, while the 15-year, fixed-rate mortgage dropped to slightly under 4.875 percent. The introductory rate on the one-year, adjustable-rate mortgage is just above 3.625 percent.

Perhaps the most damaging data came from the manufacturing sector. Both the Chicago Purchasing Managers and the Institute of Supply Management indices on manufacturing conditions fell well below 50, denoting weakness in sector. In addition, the new orders and employment components were down.

Although consumer confidence rose significantly, it couldn't combat the negative vibes from high unemployment numbers, an increase in productivity that was below forecasts, and a dip in new construction. Fed Chairman Alan Greenspan testified that he was optimistic about economic recovery, but noted that business spending will have to pick up before a rebound can occur.

There is little in the way of economic news on the docket for the next several days. Earnings season is all but over, so the markets may drift, responding to upgrades and downgrades and geopolitical news. Even the Fed meeting is expected to be a nonevent with the announcement not expected to stray far from Greenspan's statements to the House Banking Committee. With little news, rates are expected to remain stable.

Bill Steele is financial editor of Interest.com -- a national publisher of mortgage rates and information.

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