Surprising Strength from Consumers

Despite unexpected strength in the economic data, there was little movement in mortgage rates over the past week. Mortgage rates ended the week near the best levels of the year.

Following several months of unimpressive readings, Friday's strong retail sales report was encouraging. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. Retail sales in April rose 1.3% from March, which was well above the consensus and the largest monthly increase since March 2015. Retail sales were 3% higher than a year ago. The outperformance was led by autos, gas stations and online shopping sites.

The latest reading on consumer sentiment from the University of Michigan also suggested that consumers are more willing to spend. Consumer sentiment jumped to 95.8, far above the consensus of 90, and the highest level since June 2015. The combination of improving consumer sentiment and very low mortgage rates is a great environment for the housing market.

The latest reading for weekly jobless claims revealed a sharp spike to the highest level in 14 months. New unemployment claims jumped by 20,000 from last Thursday. This data would ordinarily be favorable for mortgage rates, but economists tie the cause of the spike to a couple of one-time events. These include a strike by Verizon employees and circumstances that allowed a significant number of New York City school system employees to file for unemployment benefits.

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