This morning's economic data actually gave us mixed results. The Commerce Department said that sales at the retail level of the economy rose 1.6% last month, exceeding forecasts. Even if more volatile auto-related transactions were excluded, sales rose more than expected. This means that consumers spent more last month than many had thought. This is considered negative news for bonds and mortgage rates because consumer spending makes up two-thirds of the U.S. economy. In other words, it is the fuel to economic growth. With it comes concerns about inflation that make bonds less appealing to investors and pushes mortgage rates higher.
March's Consumer Price Index (CPI) was today's second release, but it gave us good news. The Labor Department reported that the overall index rose 0.1% as it was expected to do. The good news came in the more important core data reading that excludes more volatile food and energy prices. It showed no change from February's level when forecasts were calling for a 0.1% increase. This indicates that inflationary pressures were softer than expected at the consumer level of the economy. That can be considered quite favorable for bonds, but the sales data seems to be taking center stage this morning.
The Federal Reserve will post its Fed Beige Book report at 2:00 PM ET this afternoon. This report is named simply after the color of its cover and details economic conditions throughout the U.S. by region. Since the Fed relies heavily on the contents of this report during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any significant surprises. Generally speaking, signs of strong economic growth or inflation rising would be considered negative for bonds and mortgage rates. Slowing economic conditions with little sign of inflationary pressures would be considered favorable for bonds and mortgage pricing. There is a moderate chance that this report will lead to afternoon changes in mortgage rates today.
Tomorrow's only monthly data is March's Industrial Production report at 9:15 AM ET. It gives us a measurement of output at U.S. factories, mines and utilities, translating into an indication of manufacturing sector strength. Current forecasts are calling for an increase in production of 0.7%. This data is considered to be only moderately important to rates, so it will take a more than just a slight variance to influence bond trading and mortgage pricing.
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