Even as home sales fall nationwide, the economy continues to move forward.

Year-over-year inflation as measured by Personal Consumption Expenditures registered 1.8%, well within the Fed's tolerance levels of 1-2% and suggesting that the economy is in "Goldilocks" mode -- not too hot and not too cold.

Many economists had predicted that weaker home values across the country would create a chain reaction, starting with fewer equity withdrawals and ending with fewer dollars spent in retail stores.

So far, that hasn't happened.

Personal Spending was up 0.6% in August over July's levels. This suggests that the American Consumer is undeterred by external market factors, including the "credit crunch". Incomes were also up in August, suggesting slight economic growth.

Presumably, the Federal Reserve lowered the Fed Funds Rate two weeks ago to stimulate the economy but data shows that many sectors are still growing with gusto. This week, therefore, could help set the expectations that dictate mortgage pricing until the next FOMC meeting October 30-31.

The major data release this week is Friday's Non-Farm Payrolls report which will report job growth (or loss) in the month of September. Markets are expecting that 100,000 new jobs were created and mortgage rates will move wildly if there is any variation off that figure.

If the actual number of jobs created is higher than 100,000, expect mortgage rates to rise because the strength in jobs reflects strength in the economy, making it less likely that the Fed will act to stimulate again.

In August, the economy lost 4,000 jobs.

(Image courtesy: The Wall Street Journal Online)