December's Retail Sales report kicked off this morning's batch of economic data, showing a 0.7% decline in consumer level sales last month. This was a larger decline than the 0.2% that was forecasted, signaling weakness in consumer spending. Even a secondary reading that excludes more volatile and costly auto transactions gave us results that are bond friendly (down 1.4% vs forecasts of down 0.2%). These readings are very good news for bonds because consumer spending makes up over two-thirds of the U.S. economy. With sales declining fairly rapidly, the economic recovery will take longer to accomplish. And since bonds tend to thrive in weaker economic conditions, this is good news for mortgage rates also.
Also released at 8:30 AM ET was December's Producer Price Index (PPI). The overall reading rose 0.3% while the more important core data that excludes food and energy prices rose 0.1%. The overall reading was a tad softer than expected, but the core data pegged predictions. They show that inflationary pressures at the producer or manufacturing level of the economy remains subdued. Generally speaking, this is good news for bonds and mortgage rates. However, the lack of a noticeable surprise either direction has limited the impact on this morning's mortgage pricing.
This morning's third release was Industrial Production from December at 9:15 AM ET. The report showed that output at U.S. factories, mines and utilities rose 1.6% last month, greatly exceeding expectations of 0.4%. That is a sign of manufacturing strength, making it bad news for bonds and mortgage rates. Fortunately, this report is considered to be only moderately important to the markets while the Retail Sales report is labeled as highly influential. Because of that, the markets are more focused on the sales data than this report.
Closing the week's schedule was January's preliminary reading to the University of Michigan's Index of Consumer Sentiment at 10:00 AM ET. It came in at 79.2, a little lighter than the 80.0 that was forecasted and down from December's 80.7. The lower reading indicates surveyed consumers felt less confident about their own financial and employment situations than they did last month. Because waning confidence often translates into weaker levels of consumer spending that drives economic growth, we can consider this report favorable for rates also.
Next week has little scheduled compared to this week's calendar. Most of what is set for release is related to the housing sector. The stock and bond markets will be closed Monday for the Martin Luther King Jr holiday and will reopen for regular trading Tuesday morning. Some lenders may be open for business Monday, but they likely will use this afternoon's pricing or not accept new rate locks until Tuesday morning. Look for details on next week's calendar in Sunday evening's weekly preview.
©Mortgage Commentary 2021
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Horizon Credit Union.