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Weak
Data Moves Mortgage Rates Lower
After
several weeks of focus on Fed actions and events in foreign markets,
domestic economic data was the primary influence on mortgage markets this
week. Weaker than expected results from the data helped mortgage rates,
which ended the week lower.
While it
is rarely a big market mover, this week's Consumer Confidence report
shocked investors. The index declined to 46.0, far below the consensus
forecast of 55.0, and the lowest level in nine months. Consumers are
clearly worried about the labor market, and an increase in Jobless Claims
in recent weeks has amplified the issue. The decline in confidence has
potentially negative consequences for the economy. Consumer spending
accounts for about 70% of economic activity, and this data raises concerns
about the level of future spending. Also, home sales suffer during periods
of low consumer confidence, and the housing data released this week
reflected consumer insecurity. Of course, slower economic growth is
favorable for mortgage rates, which fell after the report came out.
In
contrast to the weakness seen in many of the consumer-driven economic
reports, the manufacturing sector has been demonstrating strong performance
in recent months. Fourth quarter Gross Domestic Product (GDP), the broadest
measure of economic activity, rose at a brisk 5.9% annual rate, largely due
to a pickup in manufacturing. The added boost from manufacturing may be
temporary, however. During the financial crisis, companies drew down
inventories as much as possible to conserve capital. As the economy has
shown improvement, companies have been increasing inventories closer to
pre-crisis levels. When the inventory rebuilding is complete, manufacturing
is expected to return to more normal levels.
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