Overview: The most significant economic report released over the past week was stronger than expected, which was negative for mortgage markets. On the other hand, comments from Federal Reserve officials increased investor expectations for rate cuts later this year, which was favorable. These two influences were roughly offsetting, and mortgage rates ended the week slightly lower.
Following three months of relatively weak readings, investors were becoming more concerned that higher prices were finally slowing consumer spending. However, the latest data emphatically reversed that trend. In July, retail sales jumped a full 1% from June, which was far better than the consensus forecast of just 0.3% and the largest monthly increase since April 2022. Motor vehicles, electronics, and appliances showed the strongest gains in July, while clothing stores and sporting goods revealed a little weakness.
In the housing sector, the latest home-building data was disappointing, but Hurricane Beryl was a big factor in the shortfall. In July, overall housing starts fell 5.5% from June to the lowest level since June 2020. Single-family housing starts dropped for a fifth straight month to the lowest level since March 2023 and were 15% lower than a year ago. Single-family building permits, a leading indicator of future construction, also declined more than forecasted. In addition, a separate survey of homebuilder sentiment on housing market conditions from the National Association of Home Builders (NAHB) unexpectedly dropped to the lowest level of the year.
The minutes from the July 31 Fed meeting released on Wednesday likely set the path for a rate cut at the next meeting, as expected. Pointing to progress on inflation and increases in the unemployment rate, a small number of officials were ready to cut rates at this meeting, while the “vast majority” indicated that it would “likely be appropriate” at the next one. The minutes noted that recent data had increased the confidence of officials that inflation is trending down to their target level of 2%. Investors now anticipate that there will be a reduction in the federal funds rate in September, which would be the first easing since early in the pandemic.
Retail Sales (% change)
Week Ahead
Aug. 22
Existing-Home Sales report
Aug. 23
New-Home Sales report
Jackson Hole economic summit (Fed Chair Jerome Powell to speak)
Aug. 30
Personal Income and Outlays
Personal Consumption Expenditures (PCE) Price Index
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