Yesterday afternoon's release of the Fed Beige Book report showed that the economy grew at a moderate pace during the late February through early April period, fueled heavily by the $1,400 economic stimulus checks. There were also reports of rising inflation that could be detrimental to long-term securities such as mortgage bonds. This news did not come as a surprise, meaning the bond market and mortgage pricing had little reaction to the report.
Today's major economic release was March's Retail Sales data at 8:30 AM ET that showed consumer level spending rose a whopping 9.8%. Additionally, a secondary reading that excludes more volatile and costly auto transactions jumped 8.4%. Both readings were well above forecasts of 5.4% and 4.9% respectively, indicating consumers spent much more than expected last month. While higher spending levels are good news for the economy and bad news for bonds and mortgage rates, it is obvious these numbers are skewed by the stimulus funds that were received during that period. This likely why we have not seen a strong negative reaction to the report.
Also at 8:30 AM ET was the release of last week's unemployment update. It revealed only 576,000 new claims for benefits were filed, falling short of the predicted 695,000 initial filings and down from the previous week's revised 769,000. Declining claims is a sign the employment sector is strengthening. Therefore, we can also consider this data to be bad news for the bond and mortgage markets. Fortunately, this is only a weekly snapshot, preventing a negative influence on today's mortgage pricing.
Today's third release was March's Industrial Production data that showed a 1.4% rise in output at U.S. factories, mines and utilities. The increase shows a rebound in manufacturing activity from February's large decline but was still weaker than expectations. Forecasts were calling for a 2.8% increase in output. This allows us to consider the data favorable for mortgage rates.
Tomorrow brings us two more economic reports to watch, starting with March's Housing Starts at 8:30 AM ET. This data tracks groundbreakings of new home construction and gives us a measurement of housing sector strength. The report is expected to show a sizable increase in new starts last month, indicating strength in the housing sector.
The week closes with the University of Michigan's Index of Consumer Sentiment for April at 10:00 AM ET. This index will give us an indication of consumer confidence that hints at consumers' willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial or employment situations, they probably will delay making that purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a sizable decline from March's 84.9 reading. Current forecasts are calling for a reading of approximately 88.0.
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