Consumer Spending Rises

Mortgage markets were relatively quiet over the past week. There were no significant surprises in the economic data, and Fed officials refrained from any speaking appearances ahead of the meeting next week. As a result, rates ended nearly unchanged. 

Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a closely watched measure of the health of the economy. In June, retail sales rose just 0.2% from May, far below the consensus forecast for an increase of 0.5%. However, upward revisions to the results for the prior month mostly offset the shortfall in June, making the report roughly neutral for mortgage rates overall. Looking at the details, online sales surged 1.9% and might be even stronger in the July report given the early readings seen for Amazon Prime Day. Furniture stores and appliance dealers also posted strong gains, while spending on building materials and garden equipment dropped sharply.

With a severe shortage of previously owned homes available for sale in many regions, additional inventory is badly needed, but the latest data contained mixed news. After a huge surge last month, housing starts in June dropped 8% from May, falling short of the consensus forecast. More encouragingly, single-family building permits, a leading indicator, increased 2%. In addition, a separate survey of home builder sentiment from the NAHB rose to the highest reading since June 2022. Nevertheless, builders continue to list tight credit conditions for loans and high prices for land, labor, and materials as obstacles to a faster pace of construction.

The next US Fed meeting will take place on Wednesday. Investors anticipate that there will be a 25 basis point increase in the federal funds rate, but there is a much wider split about what will happen later in the year. The next European Central Bank meeting will follow on Thursday. For economic reports, New Home Sales will be released on Wednesday. Second quarter GDP, the broadest measure of economic activity, will come out on Thursday. Personal Income and the PCE price index, the inflation indicator favored by the Fed, will be released on Friday.