Last week, disappointing economic data significantly increased investor concerns about slowing economic growth. However, worries about a possible recession eased this week, due to unexpected strength in the economic reports. As a result, after a substantial decline week, mortgage rates moved modestly higher last week.
The most significant economic report released last week, from the Institute of Supply Management, revealed unexpected strength. The ISM national services sector index jumped from 48.8 to 51.4, beating the consensus forecast. Since readings above 50 indicate an expansion in the sector and below 50 a contraction, this report indicates that consumer demand for services remains resilient despite higher prices.
The Department of Labor releases the total number of new claims for unemployment insurance each week. The latest reading was 233,000, below the consensus forecast and down from a surprisingly large figure of 250,000 last week. This decline suggests that the higher levels over the last couple of weeks were mostly due to disruptions from Hurricane Beryl rather than underlying weakness in the labor market. Bigger picture, this was far below the inflated figures seen during the early months of the pandemic, and in line with the levels which were typical during 2019. Weekly jobless claims are important because they are one of the timeliest indicators of labor market trends.
Mortgage applications benefited from lower rates this week. According to the latest data from the Mortgage Bankers Association (MBA), applications to refinance jumped 16% from last week and were a massive 59% higher than one year ago. Purchase applications rose just 1% from the prior week and still were down 11% from last year at this time.
Investors will continue to look for Fed officials to elaborate on their plans for future monetary policy. For economic reports, attention will be focused on the inflation data. The Producer Price Index (PPI) will come out on Tuesday. The Consumer Price Index (CPI) is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services and will be released on Wednesday. Import Prices and Retail Sales will be released on Thursday. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy. Housing Starts will come out on Friday.
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