Mortgage rates climbed higher during the first half of the week and then reversed direction during the second half to end nearly unchanged. The movement didn’t correlate with any specific economic news.
The first reading for first quarter gross domestic product (GDP) growth, the broadest measure of economic activity, was 2.3%, above the consensus of 2.0%. This was down from a level of 2.9% in the fourth quarter of 2017. During the first three months of 2018, relatively weak consumer spending was offset by strong business investment.
Economists noted that the recent tax cuts may distort the typical distribution of activity between quarters for a while, making it necessary to look at longer-term time periods to discover the underlying trend in economic activity. Early estimates for second quarter GDP growth are for an increase of about 3.2%.
This week’s data on home sales in March was encouraging. Sales of previously owned homes rose 1% from February and were close to the level seen a year ago. Sales of newly built homes increased 4% from February and were 9% higher than a year ago. Both readings were stronger than expected. The difference in performance likely was due to the supply of homes on the market. The inventory of previously owned homes was at just a 3.6-month supply and was 7% lower than a year ago. The inventory of new homes was at a much healthier 5.2-month supply and was 13% higher than a year ago. Home builders clearly are responding to the shortage of supply.
Thursday’s European Central Bank (ECB) meeting provided no change in policy or new guidance for the future. ECB President Mario Draghi said that officials need more time to better understand what has caused slower growth in the region so far this year. The eurozone economy grew at its fastest pace in a decade in 2017, but growth has slowed in 2018. Investors expect that the ECB will decide in June or July when to end its bond buying program.
Looking ahead, the important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the Core PCE price index, the inflation indicator favored by the Fed, will be released on Monday. The ISM national manufacturing index will come out on Tuesday and the ISM national services index on Thursday. The next Fed meeting will take place on Wednesday, and no change in policy is expected.
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