Market Perspective

Consumer Spending Rises

Overview: Over the past week, stronger than expected retail sales data was negative for mortgage rates, and rates ended the week a little higher.

Consumer spending accounts for over two-thirds of U.S. economic activity, so the retail sales data is a key indicator of growth. Economists had anticipated that the end of supplemental unemployment benefits for many people, along with a lack of inventory for some products due to supply chain disruptions, would lead to a decline in consumer spending in September. Instead, back-to-school shopping boosted consumer spending well above the expected levels. Retail sales jumped 0.7% from August and were an impressive 14% higher than a year ago. The strength was spread among a wide range of categories, including sporting goods, book stores, and autos. Most economists now forecast that sales will remain strong for the rest of the year. Since faster economic growth raises the outlook for future inflation, this report was unfavorable for mortgage rates.

Given the critical need for more homes in many areas, investors have been closely watching the monthly reports on housing starts, and the latest data was a bit disappointing. In September, housing starts fell more than expected from August, but still were 7% higher than a year ago. Building permits, a leading indicator of future activity, also posted a larger than expected decline from August. Most of the weakness in September was seen in multi-family units, however, while single-family starts and permits were roughly flat from the prior month. According to builders, rising prices and shortages for land, materials, and skilled labor remained the obstacles to a faster pace of construction.

The Department of Labor releases the total number of new claims for unemployment insurance each week, and the latest reading was 293,000, the lowest level since March 2020. This was down significantly from the inflated figures seen during the early months of the pandemic and close to the readings around 250,000 which were typical during 2019.

Retail Sales (% change)

Week Ahead

October 21 — Existing-Home Sales report

October 26 — New-Home Sales report

October 28 — Third-quarter gross domestic product (GDP)