Last Week in Review

"Don't believe the hype!" The words from Public Enemy's hit song title rang true once again last week when the Commerce Department reported the Gross Domestic Product (GDP) for the 3rd Quarter. GDP rose by 3.5% for the first gain in a year and the strongest reading in two years.

While most media outlets were giddy about the news and started the hype that the recession is behind us, it's important to remember that there's more to the economic data than just the headlines.

The temporary "Cash for Clunkers" program has now expired, but was a big part of last quarter's GDP gain. If we remove it from the total, the reading would have been a more modest 1.9%. But there is even more to the rise in the latest GDP number that is just temporary...

Also bolstering the economy has been the $8,000 first-time homebuyer tax credit - which is set to expire at the end of this month. Many home buyers have been taking advantage of this program - and wisely so.

New Home Sales were reported last week, showing a 7.5-month supply of inventory. While that number is slightly worse than last month's 7.3 reading, it's still a big improvement from where we were in January. Back in January, inventory levels reached a high of 12.4-month supply! The improvement in housing inventories has been due in large part to the $8,000 First Time Homebuyer Tax Credit, which is set to expire on November 30.

There is a real possibility of an extension of this program through a proposed Bill, but it is not yet a certainty. The extension Bill still must be reconciled between the House and Senate, and then voted on for final approval. Under the current extension proposal, sales with signed purchase agreements by April 30th that close before June 30th, 2010 would qualify for the credit.

Another positive element would be the possible addition of $6,500 tax credit for other primary home purchasers, meaning the tax credit would no longer be limited only to first-time homebuyers. There is also a possibility that qualifying income limits could increase from $75,000 to $125,000 for singles, and from $150,000 to $250,000 for joint tax filers.

I will be keeping an eye on this for you, so stay tuned.

Forecast for the Week

This week brings us new employment numbers...and a chance to see if the labor market is showing signs of recovery. The employment news begins Wednesday with the ADP National Employment Report. Sandwiched between that report and Friday's Jobs Report, is the Initial Jobless Claims report on Thursday.

The big news comes on Friday, when the all-important Jobs Report will be released. Last month's report underscored the struggling labor market, as the Labor Department reported 263,000 jobs lost in September and an increase in the unemployment rate to 9.8%. The report due out this week is expected to show 166,000 jobs lost in October, which would be significantly better than the previous month if it happens. However, the Unemployment Rate is expected to continue its climb to 9.9%.

In addition to employment news, we'll also see the ISM Index on Monday. This is the king of all manufacturing indices and is considered the single best snapshot of the factory sector.

Finally, the Federal Open Market Committee (FOMC) holds its two-day meeting this week, with an announcement of the Fed Rate Decision and Policy Statement due on Wednesday at 2:15 p.m. (ET).

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.