MARKET COMMENT
Mortgage bond prices finished the week near unchanged which kept rates in check. There was a slight negative bias throughout most of the early part of the week despite wild stock swings. Fed speakers primed the financial markets for an announcement sometime this year regarding a reduction in their balance sheet. Weekly jobless claims were 236K versus the expected 245K. Producer prices rose 0.5% versus the expected 0.2% increase. The core, which excludes volatile food and energy, rose 0.4%. Analysts looked for a core reading of 0.2%. Tame consumer inflation readings Friday morning erased the earlier losses. CPI rose 0.2% as expected while the core rose 0.1% versus the expected 0.2% increase. Retail sales rose less than expected. Mortgage interest rates finished the week unchanged to better by approximately 1/8 of discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Housing Starts | Tuesday, May 16, 8:30 am, et | 1220K | Important. A measure of housing sector strength. Weakness may lead to lower rates. |
| Industrial Production | Tuesday, May 16, 9:15 am, et | Up 0.2% | Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. |
| Capacity Utilization | Tuesday, May 16, 9:15 am, et | 76% | Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates. |
| Weekly Jobless Claims | Thursday, May 18, 8:30 am, et | 235K | Important. An indication of employment. Higher claims may result in lower rates. |
| Philadelphia Fed Survey | Thursday, May 18, 10:00 am, et | 22 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
| Leading Economic Indicators | Thursday, May 18, 10:00 am, et | Up 0.3% | Important. An indication of future economic activity. A smaller increase may lead to lower rates. |
HOUSING STARTS
Housing starts data is a leading indicator of the state of our economy. This report, provided by the Bureau of the Census, takes into account data from both single-family homes and multi-family dwellings. Building permits are also released with the housing starts data. By knowing the number of permits issued monthly, analysts can attempt to estimate for the upcoming months. Normally, starts are 10% higher than permits since all locations are not required to have a building permit.
Housing starts and permits give a warning of future economic activity. In effect, a rise in housing starts can lead to a fall in the bond market and vice versa. Consumers tend to hold off on the purchase of new homes, new cars, and other big-ticket items if they are worried about the future of the economy. Housing is an important part of our economy. Declines in housing starts can lead to economic slowdown. On the other hand, increases in housing starts can signal positives for the economy. From the opposite perspective, changes in interest rates often lead to changes in housing starts. Higher interest rates can cause a significant decline in home sales, which can lead to a drop in housing starts. Just the opposite happens when rates remain low. Low mortgage rates affect both home sales and housing starts.
