Mixed Economic Data
This week’s major economic reports offered mixed economic data, a blend of both positive and less favorable news for the mortgage markets. While inflation data came in lower than expected, consumer spending showed surprising strength. These mixed results effectively balanced each other out, leaving mortgage rates relatively unchanged, remaining near the lowest levels of the year.
Consumer Price Index (CPI)
The Consumer Price Index (CPI) is one of the most widely followed indicators of inflation. To gain a clearer understanding of underlying trends, investors typically focus on core CPI, which excludes food and energy prices. In July, core CPI increased by 3.2% year-over-year, down from 3.3% in June, marking the lowest annual growth rate since April 2021.
Despite the decline, the annual rate remains above the Fed’s target of around 2.0%, a level last seen in early 2021. One major factor contributing to this persistence in inflation is the elevated cost of shelter, which again made up the largest portion of the CPI increase. Conversely, used vehicle prices dropped by 2.3% from June and were down 11% from a year ago. Additional categories, such as medical services, apparel, and new vehicles, also saw price declines in July.
Producer Price Index (PPI)
Another significant inflation measure, the Producer Price Index (PPI), also came in lower than expected. Core PPI, which tracks the cost pressures facing producers, rose by 2.4% year-over-year, down from June’s 3.0% and below the consensus forecast. While PPI is generally considered less influential than CPI because it covers a smaller segment of the economy, this reduction is still a positive sign.
Retail Sales
After several months of relatively weak readings, concerns were growing that rising prices were finally starting to dampen consumer spending. However, the latest data eased these fears. In July, retail sales surged by 1.0% from June, far exceeding the expected 0.3% increase and marking the largest monthly gain since April 2022. Motor vehicles, electronics, and appliances were among the categories showing the strongest growth, while clothing stores and sporting goods saw some softness.
Mortgage Market
The mortgage market continued to benefit from lower rates this week. According to the latest data from the Mortgage Bankers Association (MBA), refinance applications surged by 35% from the previous week, marking the strongest increase since May 2022, and were up a staggering 118% from the same period last year. However, purchase applications rose just 3% from the prior week and remained 8% lower than last year.
Looking Ahead
Investors will continue to seek further guidance from Federal Reserve officials on future monetary policy, especially after another round of relatively moderate inflation reports. The minutes from the Fed’s July 31 meeting will be released on Wednesday, offering more detail on their discussions. It’s expected to be a light week for economic reports, with attention shifting to the housing market, as Existing Home Sales data is due on Thursday, followed by New Home Sales on Friday.
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