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Retail Sales Retreat, Housing Starts Rise

Since the start of the year, concerns about higher inflation have been negative for mortgage markets. While there was no significant fresh inflation news over the past week, this trend continued, and rates climbed to the highest levels since early 2020.

Consumer spending accounts for over two-thirds of U.S. economic activity, so it is an important indicator of the health of the economy. In December, retail sales plunged 1.9% from November, which was far below the consensus forecast for just a slight decline of 0.1%. However, despite losing some steam during the last couple of months, sales increased a strong 17% in 2021 from the prior year. There are several factors that contributed to the recent drop in consumer spending. Warned about shortages of a wide range of products this year, consumers started doing their holiday shopping sooner than usual, boosting the results early in the season. In addition, significantly higher prices for many items caused people to scale back their purchases. The surge in COVID cases also slowed shopping trips in December, as sales at department stores fell a massive 7% from November.

With the ongoing need for a larger inventory of homes for sale in many regions, the monthly report on housing starts has gained in importance, and the latest results were encouraging. In December, overall housing starts exceeded expectations with a modest increase from November to the highest level since March. Building permits, a leading indicator, posted unexpectedly large gains of 9% from November to the best levels since January 2021. Rising prices and shortages for materials, land, and skilled labor continued to present challenges to builders.


Retail Sales (% change)

Week Ahead

Jan. 20

Existing-Home Sales report

Jan. 26

New-Home Sales report

U.S. Federal Reserve meeting

Jan. 27

Fourth-quarter gross domestic product (GDP)


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