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Retail Sales Fall Short Again

Retail Sales Fall Short Again!

Weaker than expected Retail Sales data was favorable news for mortgage rates on Thursday. Events in Europe also helped US mortgage rates this week. As a result, rates ended the week lower.

Much like last year, unusually harsh winter weather has slowed economic activity during the first quarter. While economists had forecasted a solid increase, Retail Sales fell in February, the third month in a row with a decline. With an improving labor market and lower gas prices, it was a surprise that consumer spending was not stronger.

In coming months, investors will watch to see how much spending was simply postponed due to the bad weather. Since slower economic activity reduces expectations for future inflation, mortgage rates improved after the news.

The European Central Bank (ECB) began its sovereign bond purchase program this week. This is the program they announced in January and is intended to lower interest rates and stimulate the economy. It is similar to the recently completed US quantitative easing (QE) program. While the actual start of the bond purchases by the Fed caused little reaction, the start of QE by the ECB had an unexpectedly large impact this week, causing global bond yields to move lower.

In other news from Europe, increased concerns about the status of the negotiations between Greece and eurozone officials caused investors to shift to relatively safer assets. This increased the demand for US bonds, including mortgage-backed securities, which also helped mortgage rates improve.

The big event next week will be Wednesday’s Fed meeting. The Fed is expected to indicate whether the first fed funds rate hike could take place as soon as June or whether September will be the earliest potential date. Before the Fed meeting, Industrial Production and NAHB Housing will be released on Monday. Housing Starts will come out on Tuesday. The Philly Fed regional manufacturing index is scheduled for Thursday.

Until next week! Thanks for reading.

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