Inflation Muted, Consumers Still Wary – Daily Mortgage Rate Update for August 13th, 2010
CPI up 0.3% in July, core 0.1%; Consumer sentiment bounces slightly from yearly low; Spending still sluggish – Daily Rate Update for August 13th, 2010
Some consider Friday the 13th to be an unlucky date. Unfortunately for those hoping for even lower interest rates, there wasn’t enough meaningful economic data due today to use that bad luck. Due this morning were consumer prices and consumer sentiment, and the picture on those metrics has been clear enough recently that no amount of misfortune could influence them beneficially.
Consumer prices increased by 0.3% in July driven primarily by price increases at the gas pump. I’ve certainly seen this change in my gasoline expenses, and I’m sure I’m not alone there. Ever since the 2nd cap stopped the flow of oil in the Gulf in early July, gas prices had steadily crept upward, until last week’s weak economic data sapped the strength of that rally. This is why today’s Consumer Price Index showed a mere 0.1% increase in the price level, net of more volatile food and energy costs. Year-over-year inflation is just 1.2%, far below the Federal Reserve’s target level, but at least high enough that deflation is not something to fear, yet. Inflation is highly influential to interest rates, as higher inflation always leads to higher rates.
Consumer sentiment, as measured by the University of Michigan, had been very sour lately, as the poor employment situation sapped confidence. Last month’s reading was the lowest in a year, so it is not surprising that today’s report showed a slight rebound in consumer confidence. It was expected that confidence would improve to 69.3; the actual result was 69.6, compared to July’s 67.8 level. On this index, 100 is a level consistent with average confidence, based in the reading from December 1964.
Even though sentiment was up, though, retailers are not seeing the benefits. While sales did improve slightly, 0.4%, in July, they are bouncing off an even lower low from June. Consumer retail spending makes up roughly 70% of the US economy, and is closely watched for that reason.
Mortgage pricing took a significant hit yesterday, partly on profit taking from recent substantial gains, but also on discussion of law changes that might make it easier to force banks to help underwater homeowners. Pricing has bounced back this morning, suggesting that yesterday’s dive was not supported by market data. Today’s economic news will have little overall effect on mortgage pricing, rather, it will be driven by the relationship between stock and bond pricing today. Treasury yields are showing improvement, as are mortgages. I consider it safe to float through to Monday.
Today is the type of day in which the “Friday effect” is likely to be in full swing, as there has been little relevant economic news, and a lot of uncertainty exists among traders. I suspect they will seek the safest possible position going into the weekend, and that means that mortgage pricing will likely improve later in the day. This week’s announcement from the Federal Reserve will also contribute to this. If you have questions regarding Rhode Island Refinance Rates, or whether or not to lock your loan, please don’t hesitate to contact me by cell at (401) 263-8655. Have a great day!
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Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and serves as an Adjunct Professor of Finance and Economics at Roger Williams University and the University of New Haven. He has been helping homeowners and homebuyers with their mortgage questions for over 10 years.
August 13, 2010 by Dan Hartman · 1 Comment
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I have worked as a residential mortgage advisor since February of 2000 and a part of the founding team here at Province Mortgage. We believe that by doing right by a family today, we can create a relationship for life, and, hopefully, and ambassador who will share the experience with others. It is our team of professionals that helps us to create this experience.
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[...] rose where economists had predicted a decline may have been a little bit less of a surprise. Consumer opinion is used to gauge the likelihood of increases in consumer spending, which is responsible for 70% of [...]