This week’s economic data and Fed meeting had little impact on mortgage markets, and rates again held steady near record low levels.
The biggest economic report released this week revealed that the steady recovery in consumer spending following the enormous declines in March and April due to the pandemic has continued. In August, retail sales rose a solid 0.6% from July and were 3% higher than a year ago. Since consumer spending accounts for over two-thirds of all economic activity in the US, the retail sales data is a key indicator of growth.
The headline figure for August housing starts showing a decline of 5% from July was below the consensus forecast, but a closer look at the details was much more encouraging. The weakness was entirely due to a 23% decline in multi-family units, which are very volatile from month to month. Single-family starts, which are much more relevant to people looking to buy a home, increased 4% from July. Similarly, single-family building permits, a leading indicator of future construction, rose 6% from July, while multi-family permits fell 14%. This was welcome news since a lack of inventory has held back home sales for some time.
Nothing particularly surprising emerged from Wednesday’s Fed meeting. As expected, monetary policy will remain highly accommodative for a long time to help support the economy, and officials projected that they will not raise the federal funds rate from its current level near zero during the next few years. According to the statement, this will be consistent with their dual goals of maximum employment and an inflation target averaging 2% annually over the longer-term. Some investors were disappointed that officials did not provide more specific guidance on the level of future asset purchases by the Fed.
Investors will remain focused on medical advances to fight the coronavirus. Beyond that, it will be a very light week for economic data. Existing Home Sales will be released on Tuesday and New Home Sales on Thursday. Durable Orders, an important indicator of economic activity, will come out on Friday.
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