Construction Spending Rises

U.S. construction spending rose 0.3 percent in April as private residential construction increased at the fastest pace in six months. Overall construction spending was up 6.8 percent compared with April 2011.

Construction spending rose to an annual rate of $820.7 billion, the Commerce Department said on Friday, after an upwardly revised 0.3 percent increase in March.

Also on Friday, the Institute for Supply Management said its index of national factory activity slipped to 53.5 from 54.8 in April, just missing expectations for 53.9. But, while the pace of growth in U.S. manufacturing slowed modestly in May, according to the report, a gauge of new orders rose to its highest in over a year. A reading above 50 indicates expansion in the manufacturing sector.

What Happened to Rates Last Week?

Mortgage backed securities (MBS) gained +105 basis points from last Friday to the prior Friday which caused 30 year fixed mortgage rates to reach a new all-time low.
Mortgage rates moved lower throughout the week on heightened concerns over the banking issues in Spain and Italy as their bond yields soared to new all-time highs.  This made the quality and safety of U.S. bonds very attractive to foreign investors.  This added demand caused bond prices to increase and interest rates (which move in the opposite direction) to decrease.
Mortgage backed securities shot upward (causing mortgage rates to hit new all-time lows) on Friday in reaction to the much weaker than expected jobs data.  The Unemployment Rate increased from 8.1% to 8.2%, but the real story was the big miss in the Non-Farm Payroll data.  The market was expecting the economy to add around 150,000 new jobs but instead, it only added 69,000.
This much weaker than expected employment data caused a big-time buying spree of 10 year U.S. Treasuries and the higher yield paying Mortgage Backed Securities.