"My mama told me, 'You better shop around.'" The Miracles. Clearly that message wasn't heard among consumers. Back-to-school shopping didn't help overall Retail Sales make the grade in August. The increasing cost of goods might be to blame.
Consumers spent less on a variety of goods, including autos, in August. This could signal a slowdown here in the U.S., especially since August is a big month for back-to-school sales and consumer spending is what drives our economy. The Commerce Department reported that Retail Sales in August fell 0.3 percent, below the -0.1 percent expected.
Retail Sales have now slowed for two straight months. This likely means that the Federal Reserve will not raise the short-term Fed Funds Rate at the next Federal Open Market Committee meeting Sept. 20-21. The Fed Funds Rate is the rate at which banks lend money to each other overnight.
This exercise in frugality might be a reaction to increasing costs on the consumer side. While the Producer Price Index showed that wholesale inflation remained tame, the Consumer Price Index (CPI) increased 0.2 percent in August, the U.S. Bureau of Labor Statistics reported.
Core CPI, which strips out volatile food and energy, increased 0.3 percent in August, the largest increase since February. Core CPI has now risen 2.3 percent in the 12 months ending in August. This is important to note because inflation reduces the value of fixed investments, like Mortgage Bonds. Since home loan rates are tied to Mortgage Bonds, further signs of inflation are something to watch for, as both Mortgage Bonds and home loan rates could worsen if inflation heats up.
For now, home loan rates are still holding strong in historically low territory, providing great opportunities for purchases and refinances.
If you have any questions about home loans or rates, please contact me today.
Forecast for the Week
Housing data dominates, but the Federal Open Market Committee (FOMC) will garner much of the attention.
Housing data kicks off with the NAHB Housing Market Index on Monday, Housing Starts and Building Permits on Tuesday, and Existing Home Sales on Thursday.
The FOMC monetary policy statement will be issued Wednesday.
Weekly Initial Jobless Claims will be released on Thursday.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. In contrast, strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based.
When you see these Bond prices moving higher, it means home loan rates are improving. When Bond prices are moving lower, home loan rates are getting worse.
To go one step further, a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes are on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.
As you can see in the chart below, Mortgage Bonds have tried to make up for some lost ground recently; however, home loan rates remain in historically low territory.
Chart: Fannie Mae 3.0% Mortgage Bond (Friday Sep 16, 2016)