An increase in coronavirus cases around the world was modestly positive for mortgage markets this week, while the major economic data was mixed and had little overall impact. As a result, rates remained near record low levels.
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. Following sharp declines in March and April due to the partial shutdown of the economy, retail sales have shown five straight months of gains and are above the levels seen prior to the pandemic. In September, they jumped 1.9% from August, far exceeding the consensus forecast for an increase of just 0.5%. Strength was seen in vehicles, clothing, sporting goods, and home-improvement.
In contrast to the strong results for consumer spending, Industrial Production in September declined 0.6% from August, far below the consensus forecast for an increase of 0.5%. Capacity Utilization, an estimate of actual output as a percentage of potential output for the entire economy, was just 71.5%, compared to levels above 76% prior to the pandemic. While some manufacturing sectors have bounced back nicely from the partial shutdown of the economy, others are still operating at much weaker levels.
The reduced economic activity resulting from the coronavirus has caused a significant decline in inflation. The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services. In September, core CPI was 1.7% higher than a year ago, matching expectations. While this was up from recent levels of just 1.2%, it still was far below the readings around 2.3% seen during the first few months of the year.
Investors will remain focused on medical advances to fight the coronavirus and negotiations for additional government fiscal stimulus measures. Beyond that, it will be a very light week for economic data with the spotlight on the housing sector. Existing Home Sales will be released on Tuesday and Housing Starts on Thursday.
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