Retail Sales Stall

Aug 12 2016

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The most significant economic report released over the past week, retail sales, fell far short of expectations, which was good for mortgage rates. A decline in bond yields overseas also helped, and mortgage rates ended the week lower. 

After several months of strong readings, Friday's retail sales data fell far short of expectations. Excluding the volatile auto component, retail sales in July fell 0.3% from June, below the consensus for an increase of 0.2%. Auto sales rose a strong 1.1% in July, and total retail sales in July were flat from June, but again this was far below the consensus for an increase of 0.4%. .

Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. Consumer spending during the second quarter was one of the bright spots for the economy. Since the data can be volatile from month to month, investors will be closely watching to see if the July results reflected just a temporary pause or the start of a longer period of weaker spending. Slower economic growth reduces the outlook for future inflation, so the retail sales data was positive for mortgage rates.

Over the past week, bond yields overseas declined. When this happens, it makes the yields on U.S. bonds relatively more attractive to global investors, driving up the demand. This in turn causes the price of U.S. bonds to rise and yields to fall. The strong demand was seen at the Treasury auctions which took place this week. Mortgage-backed securities (MBS) prices also rose, causing mortgage rates to move lower. 

Looking ahead, the Consumer Price Index (CPI), a widely followed monthly inflation report, will come out on Tuesday. CPI looks at the price change for goods and services which are sold to consumers. Housing Starts also will come out on Tuesday. The minutes from the July 24 Fed meeting will come out on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials and have the potential to significantly move markets. 

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Topics: The Money Source, mortgage news, consumer price index, mortgage rates, consumer spending

Fed Lowers Forecasts

Jun 17 2016

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Over the past week, mortgage rates were helped by Wednesday's dovish Fed statement and concerns about the upcoming British vote on leaving the European Union. There was little reaction to the recent economic data. As a result, mortgage rates ended the week near the best levels of the year.

The Fed statement and Fed Chair Yellen's press conference proceeded pretty much as expected. The Fed made no change in the federal funds rate. Investors mostly focused on the projections from Fed officials for the path of rate hikes in coming years which showed a significantly slower pace than the last set of projections made three months ago. Little new information was provided about the timing of the next rate hike. The dovish tone of the statement was positive for mortgage rates.

After several months of disappointing readings, retail sales have bounced back strongly with three straight months of nice gains. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. Consumer spending increased at just a 1.9% annual rate during the first quarter of 2016. 

Following the most recent results, economists estimate that consumer spending is increasing at a 3% to 4% annual rate during the second quarter, leading to higher forecasts for second quarter GDP growth.

The most recent inflation reading, the consumer price index (CPI), reported that core inflation in May was 2.2% higher than a year ago. Core inflation, which excludes the volatile food and energy components, has held steady near this level for several months. During most of 2015, the readings for core inflation were closer to 1.5%.

Looking ahead, the main influence on U.S. mortgage rates is likely to be the "Brexit" vote on Thursday. Due to the economic uncertainty which would result, a vote for the UK to exit the European Union is expected to be positive for U.S. mortgage rates, while a vote to remain would be negative. Polling data released during the week could increase daily volatility. The major U.S. economic reports which will be released next week include existing home sales, new home sales, and durable orders.

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Topics: The Money Source, mortgage news, consumer price index, economic data, federal funds rate, mortgage rates, retail sales, consumer spending

Inflation Declines

Apr 15 2016

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While the U.S. economic data released over the past week generally was a bit weaker than expected, it was offset to some degree by stronger than expected data in China. The net effect was small, and mortgage rates ended the week just a little higher, up from the lowest levels of the year. 

While explaining why the Fed plans to move gradually to tighten monetary policy, Fed Chair Yellen said that she was concerned that the recent increase in core inflation may be due to temporary factors. The consumer price index (CPI) report for March released on Thursday might be a sign that her concerns are justified. 

Core CPI inflation, which excludes the volatile food and energy components, was 2.2% higher than a year ago, down from a 2.3% annual rate in February, and below the consensus forecast. This follows four straight months of increasing levels of core inflation and may be the start of a trend lower. It would be good for mortgage rates if inflation continues to decline.

Retail sales in March were a good deal weaker than expected. The results were decent, but investors were looking for better. Excluding the volatile auto component, retail sales increased 0.2% from February, which was the largest increase in four months, but it was half the expected level. Consumer spending is an important component of gross domestic product (GDP), and it was somewhat surprising that the report caused so little reaction. 

Looking ahead, the biggest event next week may be Thursday's European Central Bank (ECB) meeting. Bond purchases by the ECB have helped keep global bond yields low, so comments about future policy could have an impact on U.S. mortgage rates. Before that, the NAHB housing index will be released on Monday. Housing starts will come out on Tuesday. Existing home sales will be released on Wednesday.

Topics: Ali Vafai, The Money Source, mortgage industry, mortgage news, consumer price index, economic data, mortgage rates, retail sales, inflation, consumer spending

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