Overview: While extremely positive COVID vaccine trial data from a second company reinforced the view that relief from the pandemic is on track, concerns grew this week that rising case counts will restrain economic activity during the next few months. Since slower growth decreases the outlook for future inflation, this was positive for mortgage markets, and rates ended the week near record-low levels.

Consumer spending accounts for over two-thirds of all economic activity in the U.S., so the monthly retail sales data is a key indicator of growth. Following sharp declines in March and April, retail sales have shown six straight months of gains and are above the levels seen prior to the pandemic. However, consumer spending may be showing signs of falling below the expected pace as we head into the critical holiday shopping season. In October, it rose just 0.3% from September, which was below the consensus forecast for an increase of 0.5%, and the results for September were revised lower as well. In short, this report played into investor fears that a growing number of cases of the coronavirus may be causing consumers to scale back in some areas.

While the retail sales data was a bit disappointing, this week’s housing market news was very encouraging, as home builders strive to provide much-needed inventory. In October, single-family housing starts rose 6% from September to the highest level since April 2007. In addition, the National Association of Home Builders (NAHB) housing index showed that builder confidence unexpectedly jumped from 85 to 90, smashing last month’s record high.

Retail Sales (% change)

Week Ahead

November 19 — Existing Home Sales report

November 25 — New Home Sales report

November 25 — Core Personal Consumption Expenditures (PCE) Price Index