Mortgage backed securities (MBS) prices are lower (rates higher) as signs showed the worst of the recession may be past, the pace of government debt sales accelerates and after the Fed said yesterday the economic outlook "improved modestly" and refrained from expanding its program to buy U.S. debt.

The DOW is up over 100pts as stock market gains have pushed MBS markets lower.

Consumer spending declined 0.2%, more than forecast, in March after a two month spurt, signaling any economic recovery will be gradual. Personal income dropped 0.3%, the fifth drop in the last six months. Labor costs rose 0.3% in the 1st quarter, less than expected and the smallest gain on record, a sign the recession is restraining wages and benefits, posing no inflationary risks.

The employment cost gauge measures the cost of wages, benefits and employer paid taxes, which account for 70% of company expenses. Jobless claims fell 14K to 631K, indicating the pace of job losses is slowing even as the total number of people collecting benefits jumped 133K to 6.271 million, another record and 15th straight increase.

Chicago PMI increased to 40.1 from 31.4 the prior month as business activity contracted at a slower pace in April as orders and production improved. a measure of prices paid for raw materials decreased to 28.4 form 34.1, the lowest level since 1949. While the pace of contraction may be slowing, conditions remains weak but inflation appears subdued.