Manufacturing Picks Up

Most of the economic data released over the past week was stronger than expected. This raised the outlook for future inflation, which was negative for mortgage rates. As a result, rates ended the week a little higher.

The manufacturing sector of the U.S. economy has been slowed in recent months by weaker global economic growth, lower demand from the energy sector and the strength of the dollar, making U.S.-manufactured goods more expensive for foreign buyers. The recently released ISM national manufacturing survey for February indicated that things may be turning a little more positive. The survey rose to the best level in five months. While the manufacturing sector has not been adding to overall economic growth in the U.S. in recent months, at least it no longer appears to be a drag.

One component of the survey stood out more than the overall figure. The prices paid component measures the change in the prices that manufacturers charge. Due to weakness in the sector, prices have been falling, and this has helped keep overall inflation levels in the U.S. low. In February, the survey on prices paid revealed a much higher reading than was expected. Coming on the heels of recent significant increases in the broad-based monthly inflation measures, investors became more concerned that mortgage rates could stay as low as they have been for much longer. Mortgage rates are highly influenced by expected inflation levels. As inflation expectations rise, so do mortgage rates.

Source: MBS Quoteline

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