Overview: During a relatively quiet week, investors focused on major reports on inflation, retail sales, and housing starts. The data was mixed, and mortgage rates ended with little change.
The economic data for September should be evaluated with an eye toward the impact of the recent hurricanes. In September, the Consumer Price Index (CPI) posted its largest monthly increase since June 2009. This was mostly due to a hurricane-related 13% increase in gas prices during the month. Core CPI, which excludes food and energy, rose less than expected. It has held steady at an annual rate of 1.7% for five straight months. The tame inflation data was good for mortgage rates.
Retail sales posted a better than expected 1.6% increase in September. Strength was seen in car sales, as people replaced vehicles lost in the hurricanes. Overall, though, it was difficult to determine the impact of the hurricanes. According to the Commerce Department, companies reported that "the hurricanes had both positive and negative effects on their sales data." Since stronger economic activity raises the outlook for future inflation, this report was negative for mortgage rates.
There was little doubt that Wednesday's report on housing starts was heavily influenced by the hurricanes. In September, single-family housing starts in the U.S. declined 5% from August. Starts rose in the Northeast, the Midwest, and the West. By contrast, they dropped an enormous 15% in the South, which includes Texas and Florida. Since the shortfall was so clearly connected to the hurricanes, there was little investor reaction to the data.
Looking ahead, the Existing Home Sales report will be released on October 20, followed by New Home Sales on October 25. The Durable Goods report, an important indicator of economic activity, will also come out on October 25. The first estimate of third-quarter gross domestic product (GDP) will be released on October 27. In addition, there will be a meeting of the European Central Bank on October 26, which could affect U.S. mortgage rates.