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Consumer Spending Surges

Overview: Over the past week, the major economic news was nearly all negative for mortgage markets. This included stronger than expected economic data, increased optimism about the vaccine rollout, and upcoming government stimulus spending. As a result, mortgage rates ended the week near the highest levels since February 2020.


Consumer spending accounts for over two-thirds of all economic activity in the U.S., and the retail sales data is a key indicator of growth. Following sharp declines in the spring due to the pandemic, consumer spending bounced back quickly, reaching record levels. However, rising COVID case counts then caused three straight months of declines during the holiday shopping season. Then in January, the trend reversed yet again. Retail sales soared an amazing 5.3% from December, far above the consensus forecast for an increase of 1.2%, boosted by the millions of people that received $600 stimulus payments. Particular strength was seen in home improvement and electronics.

The reduced economic activity resulting from the pandemic caused a decline in inflation, which was one of the factors responsible for the record-low mortgage rates seen in recent months. However, investors are now concerned that inflation may be heading higher. In January, the core Producer Price Index (PPI) was 2% higher than a year ago, which was far above the consensus forecast, and up from an annual rate of increase of just 1.2% last month. PPI generally is an early indicator of building pressure in the pipeline for future inflation. As the vaccine rollout progresses, pent-up demand in areas such as travel may be unleashed, causing prices to spike further.


Retail Sales (% change)

Week Ahead

February 18 — New Residential Construction report (aka Housing Starts)

February 19 — Existing Home Sales report

February 26 — Core Personal Consumption Expenditures (PCE) Price Index



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