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Retail Sales, Overall Economic Data Fall Short

Overview: It was a relatively quiet period for mortgage markets over the past week. The primary influence was weaker than expected economic data, and mortgage rates ended slightly lower.


The major economic data released over the past week generally fell short of the expected levels. Most significantly, the Retail Sales report which had been delayed by the government shutdown finally came out on Thursday. Since consumer spending accounts for about 70% of all economic activity in the U.S., the retail sales data is a key indicator of growth.

In December, retail sales fell an enormous 1.2% from November, far below the consensus forecast for a small increase, and the largest monthly decline since September 2009. Retail sales tend to be volatile from month to month, but an unexpected drop of this magnitude during the important holiday shopping period was hard to ignore. Since weaker growth reduces the outlook for future inflation, the data was positive news for mortgage rates.

The minutes from the January 30 Federal Reserve meeting released on Wednesday contained no notable surprises. While mortgage rates moved noticeably lower following the meeting itself three weeks ago, the detailed minutes provided no new insights and caused little reaction. The minutes confirmed that “many participants” thought that it was not yet clear whether additional federal funds rate hikes would be needed this year. Also, Fed officials intend to soon announce a plan to stop reducing their large holdings of Treasuries and mortgage-backed securities.

Week Ahead

Looking ahead, the Durable Goods report, an important indicator of economic activity, and the Existing Home Sales report will be released on Thursday. The New Residential Construction report (also known as Housing Starts) will come out on February 26. Fed Chair Jerome Powell will be delivering his semiannual testimony to Congress on February 26 and 27. In addition, Treasury auctions on February 25 and February 26 could influence mortgage rates.

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