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Consumer Spending Falls, Relief Package Looms

Overview: After a volatile start to the year, mortgage markets were relatively quiet over the past week, and rates remained a bit above the record-low levels seen during the last several months of 2020.


Consumer spending accounts for over two-thirds of all economic activity in the U.S., so the retail sales data is a key indicator of growth. Following a sharp drop in the spring due to the pandemic, consumer spending recovered swiftly to reach record levels. However, rising COVID case counts have caused declines over the last three months. In December, retail sales fell 0.7% from November, and the November results were revised lower.

On Thursday, then-President-elect Biden released the details of a $1.9 trillion coronavirus rescue package to assist households and businesses during the pandemic. Some notable programs in the plan are direct payments of $1,400 to most Americans, increasing unemployment benefits and the minimum wage, and extending eviction and foreclosure moratoriums until the end of September. It remains to be seen if portions of the package will be changed to get it approved by Congress. Since the size of the package was close to the anticipated levels, the effect of the announcement on mortgage rates was minor.

Several Federal Reserve officials gave speeches with a similar message over the past week, including Chair Jerome Powell. According to them, raising the federal funds rate will not take place any time soon. Officials want to see more improvement in the labor market and don’t see any reason to tighten monetary policy unless inflation rises substantially “in ways that are unwelcome.”


Retail Sales (% change)

Week Ahead

January 21 — New Residential Construction report (aka Housing Starts)

January 22 — Existing Home Sales

January 27 — Federal Reserve meeting



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