Whoa!…everybody calm down…I’m talking about last weeks retail sales data that was A LOT stronger than forecasted. The Core retail sales number came in 3 times HIGHER than expected, so is the forecast wrong or is the consumer ACTUALLY this strong? Or is there a false variable in here skewing the figures? I think what’s really happening is regardless of price, demand is demand and people NEED the things they NEED. Elevated retail numbers could be a false positive in the end, because other aspects of the economy are still making their impacts felt like rising consumer debt, elevated car loan rates, credit card rates, monthly rents and even mortgage rates…all which apply pressure on the pocketbooks of everyone!
And that leads us back to the inflation conversation. Last week Jerome Powell said inflation is still too high and lower economic growth is likely needed to bring it down. While speaking to the economic club of New York Jerome Powell said “Inflation is still too high and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal. We cannot yet know how long these lower readings will persist or where inflation will settle over the coming quarters” Did you hear that? QUARTERS not weeks, not months, quarters with an ‘S’ we’re still no where close to returning to their target of 2% inflation over the long run…and to make things even potentially worse when asked if policy was too tight right now his answer was “I would have to say no” and further noted that higher interest rates are difficult for everybody.
Which brings us to the mortgage conversation. Last week mortgage rates hit the 8% range on the popular 30 year fixed rate mortgage. 8%!!! As we’ve been talking about, the relationship between the 10 year yield and mortgage rates historically run very parallel to one another. Last week rates rose sharply as the nation continues to be plagued with low inventory, high rates and an affordability crunch. Not to mention an undercurrent of unspoken exhaustion by aspiring homeowners who are finding it more and more difficult to get into the market. And on the other side of the coin, existing homeowners find themselves with massive equity gains still intact. They have the potential for their home equity to become the future ATM machine to cure personal financial debt problems, remodel or restoring their current home to stay in it for the long haul, or even use some of that equity to convert a garage into a dwelling, build an ADU, or room addition. This set of housing related criteria have never been at these historic levels altogether at the same time so we are definitely in uncharted territory. But those who will take action on accessing a home equity line of credit or a fixed second loan will likely be the ones in the end holding a nice bag of cash as a result of letting the house do some of the heavy lifting.
So with that, let’s take a quick look at what’s coming up in the markets this week.
Tuesday: Flash Manufacturing PMI and Flash Services PMI come out. A reading above 50 is a good sign, and anything below 50 is a sign of contraction in these sectors.
Wednesday: We learn the New Home Sales numbers, which have been a bit erratic these last few months, but with 1 major theme of WE NEED MORE HOUSING! Whether the forecast is right or wrong almost doesn’t matter because the supply is low whether the reading misses or not. So Home builders!!! Can we get some nee homes please!?!
Thursday: Advance GDP Quarter over quarter, unemployment claims and a bunch of durable goods data come out. Keep your eyes on the GDP and unemployment part as BOTH will weigh in on the Fed’s upcoming decisions. Given the stronger than expected retail sales reading last week, the temperature is heating up again…I cant believe I’m even saying that. Since March 2022 when the Fed began raising rates, this has just been the craziest 19 months….well, since 2008 & 2009
Friday: Core PCE price index and Revised consumer sentiment come out. It would be nice for these to be in line with expectations, because we need them to be. Progress must be made towards the Fed’s dual mandate and this weeks readings can really help us feel like there’s some positive action going on.
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