Daily Commentary by Larry Baer: Retail Sales jumped 1.1% higher in February, far
surpassing expectations. Excluding autos, sales were up a solid
1.0%. Some of the headline growth in retail sales was due to a 5.0% surge
in gasoline prices.
A number of pundits
and media "talking heads" are enthusiastically trumpeting news of a
powerful consumer driven economic recovery. I happen to be in the
minority of analysts who believe the celebration may prove to be a bit
premature.
Wage and salary
gains were not enough to cover the consumers February spending spree -- as
evidenced by the fact the savings rate plunged to extremely low levels.
The "so what" factor here is definitely worth noting. A savings
subsidized spending spree is guaranteed to come to a screeching halt the minute
personal savings accounts are drawn down to a near zero level. Without
notable and immediate gains in wage and salaries - it is a virtual guarantee
the handsome February retail sales gains will not be sustainable. Since
consumer spending accounts for two-thirds of the U.S.
economic activity -- the pace of growth through the summer months may not be
nearly as robust as some now suggest. If so, slower economic growth will
likely prove to be good news for the prospects of steady to perhaps
fractionally lower mortgage interest rates - but not such good news for the
prospect of forward looking mortgage loan demand.
Speaking of mortgage
loan demand - the Mortgage Bankers of America
have released their Mortgage Application Survey for the week ended March 8th.
During the survey period overall mortgage loan demand fell by 4.7% -- it was
the fifth decline in the last seven weeks. Application traffic for home
purchase dropped 2.5% while refinance activity declined by 5.2%.
Refinance applications accounted for 76% of all applications and 71% of the
perspective loan volume.
During the survey
week the contract rate for 30-year fixed-rate conforming mortgages increased by
11 basis-points to 3.81%. The interest rate is 6 basis-points higher from
four-weeks ago, but 25 basis-points lower from the year ago mark.
Uncle Sam will be in
the credit market today looking to sell $21 billion of 10-year notes. The
auction will conclude at 1:00 p.m. ET. I'll post results on my website as
soon as possible once the final gavel falls. The Treasury Department will
sell $13 billion of 30-year bonds on Thursday.
Keep your fingers
crossed fixed-income investors make a strong showing at these two remaining
debt sales. A weak Treasury debt auction of these longer dated securities
will almost certainly put some upward pressure on mortgage interest
rates. It is a close call - but with yields on the offered securities at
roughly twelve month highs -- the risk of a soft debt sale this time around is
not as threatening as it has been in prior periods.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
