Improving economic growth in the US was negative for mortgage rates last week. This was mostly offset by weakness in Europe and Japan, however. As a result, mortgage
rates ended the week just a little higher. The biggest US economic report released last week was Retail Sales. Since Retail Sales account for roughly 70% of economic activity, this report is closely watched by investors and the Fed. Consumer Spending increased at a 2.2% annual rate during the fourth quarter of 2012, but investors are concerned that it may slow during the first quarter due to a number of factors, including this year’s payroll tax increase and rising gas prices. Investors were pleased that the actual results showed that January Retail Sales posted a small increase from December. The full impact of the payroll tax increase may not be seen until February or March, though. The news from Europe and Japan released last week revealed less impressive economic growth. Fourth quarter GDP in the euro zone fell short of expectations, declining at a 2.3% annualized
rate, the third straight quarter of negative readings. Even Germany, which had remained relatively strong during most of Europe’s financial crisis, dropped at the same 2.3% annualized rate. GDP in Japan was expected to rise during the fourth quarter, but it also declined, for the third straight quarter. In general, slower global economic growth reduces future inflation expectations in the US, which is positive for mortgage rates. This
week, the detailed Minutes from the January 30 Fed meeting will come out on Wednesday, and the last release had a major impact on mortgage rates. The most significant economic data this week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by
companies to produce finished products and will come out on Wednesday. The consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Housing Starts will come out on Wednesday. Existing Home Sale,
Leading Indicators, and Philly Fed will be released on Thursday. Officials from the Group of 20 nations will be meeting this weekend.
Mortgage markets were closed on Monday in observance of Presidents
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