February 15, 2013 rummy 0Comment

Retail Sales Increase

Improving economic growth in the US was negative for mortgage rates this week. This was mostly offset by weakness in Europe and Japan, however. As a result, mortgage rates ended the week just a little higher.

The biggest US economic report released this week was Retail Sales. Since Retail Sales account for roughly 70% of economic activity, this report is closely watched by investors and the Fed. Consumer Spending increased at a 2.2% annual rate during the fourth quarter of 2012, but investors are concerned that it may slow during the first quarter due to a number of factors, including this year’s payroll tax increase and rising gas prices. Investors were pleased that the actual results showed that January Retail Sales posted a small increase from December. The full impact of the payroll tax increase may not be seen until February or March, though.

The news from Europe and Japan released this week revealed less impressive economic results. Fourth quarter GDP in the euro zone fell short of expectations, declining at a 2.3% annualized rate, the third straight quarter of negative readings. Even Germany, which had remained relatively strong during most of Europe’s financial crisis, dropped at the same 2.3% annualized rate. GDP in Japan was expected to rise during the fourth quarter, but it also declined, for the third straight quarter. In general, slower global economic growth reduces future inflation expectations in the US, which is positive for mortgage rates.