MORTGAGE RATES MOVING LOWER ON RETAIL SALES MISS

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Published Date 5/12/2017

Two 8:30 AM EST data points this morning. April retail sales, expected up 0.6% was +0.4%, excluding auto sales expected +0.5% was +0.3%. March retail sales originally reported -0.2% was revised to +0.1%; excluding auto sales, March was revised from 0.0% to +0.3%. April CPI also at 8:30 expected to be +0.2% was in line +0.2%, but March was down -.3%. The April core (excluding food and energy) was thought to be +0.2%, as reported +0.1%. Yr./yr. Overall CPI 2.2% slightly less than 2.3% expected; yr./yr. core CPI +1.9% also less at 1.9% against +2.0% expected. Both Yr./yr. numbers were less than in March; 2.4% on the overall and +2.0% for the core.

The reaction to both reports pushed MBS prices higher (lower mortgage rates) and the 10-yr. note yield down to 2.34% -4 bps from yesterday’s close.

Yesterday April PPI (wholesale prices) exceeded forecasts; this morning consumer measurements didn’t confirm the higher prices. Maybe next month when the wholesale price increases filter to the consumer level. Nevertheless, inflation was a worry yesterday, today not so much. Continued price weakness in medical care, down 0.2 percent in the month, and continuing contraction for communications where providers are in a price war. Apparel is down for a second month with transportation showing only a fractional gain after two prior months of contraction. Owners’ equivalents rent, which is closely watched in gauging the housing sector, rose only 0.2 percent.

Retail sales in April didn’t meet forecasts; vehicle sales increased 0.7 percent in April following three straight sizable declines. Non-store retailers continue to outperform with electronics & appliances showing a second healthy gain. We have commented a few times in the past about the disconnect between the two monthly consumer surveys (U. of Michigan and the Conference Board’s consumer confidence). It should be clear with the data this morning that consumer spending, where that rubber meets the road, are not putting their money where the increased confidence occurs in those surveys. Despite a very easy comparison against a very weak first quarter, second quarter consumer spending is off to no better than a moderate start. (see below for this morning’s release from the U. of Michigan consumer sentiment index).

At 10:00 am two more reports this morning; the mid-month U. of Michigan consumer sentiment index was expected at 97.3 from April final at 97.0; increased to 97.7, as I noted above, I see little reason to pay much attention to these consumer surveys until they begin to reflect reality. Surveys of consumers are not reliable; consumers interviewed always will take a positive approach to questions; it’s what they do not what they say that is important. March business inventories increased 0.2% against 0.1% expected.

Source: TBWS

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