We’re trying to get back on our normal schedule, and apparently that’s a little harder than we expected.
Unfortunately, we did not release any updates to Greenlitres.com this week, but that doesn’t mean we weren’t working. We’re currently in the middle of a major UI update to the search experience, along with improvements to several other pages. We expect to start rolling those changes out early next week.
Now, for the news.
Economic Note
The market has been on edge after last week’s employment report, with investor movement seemingly on pause as everyone waited for some guidance from this month’s CPI and PPI reports.
Well, those figures finally came out, and they’re giving us clear indications of exactly how the rest of the year is going to play out…
Just kidding. We still have no idea where things are going.
Economic reports used to feel like they gave us at least a little insight into what was coming next. Things felt somewhat predictable. Now, they more or less just tell us where we are, or where we’ve already been.
Still, knowing where things stand matters, especially when we’re trying to understand where the real estate market may be heading.
So let’s get into it.
The Consumer Price Index (CPI) increased by 0.1% from June to July, bringing headline inflation to 3.4% year over year. This came in right in line with economists’ expectations and initially helped keep some downward pressure on rates.
Digging a little deeper into the report, core CPI increased by 0.2% for the month and 2.5% for the year. One of the more encouraging pieces of the report was a 1.5% decline in energy prices, right in time for the turn of the season.
The Producer Price Index (PPI) brought us even better news.
There was virtually no change in PPI for July, beating expectations for a roughly 0.2% increase. Goods prices actually fell 0.7%, helped significantly by the shift in energy prices.
If we dive deeper into the figures, though, we find that the measure excluding food, energy, and trade services increased by 0.4%. So we’re not exactly out of the deep end yet, and we’re still very much at the mercy of volatile energy prices.
Either way, these inflation reports brought some much needed optimism to the market.
So things were looking really good this week! But then we remembered something.
We completely failed to mention last week that we also had the Advance Monthly Retail Trade Report being released this week. This morning, actually.
Retail sales aren’t something we pay nearly as much attention to as CPI, PPI, or PCE, but they absolutely can move the markets, including the bond market, which plays a major role in where daily mortgage rates ultimately end up.
And when we get a weaker than expected retail sales report, we would normally expect to see downward pressure on Treasury yields, including the 10 year.
Economists were expecting retail sales to increase by around 0.1%.
Instead, they came in at a 0.6% decline.
There are a few important caveats here, and economists are already pointing at some of them.
The first is, believe it or not, Amazon Prime Day shifting from July to June this year.
We know how crazy that sounds, but online sales fell sharply in July, so there is a pretty decent argument that moving one of the largest online shopping events of the year into the previous month pulled some spending forward.
The other, of course, is the craziness we’ve seen in fuel prices.
Maybe people are driving less. Maybe they’re spending more at the pump and less everywhere else. Who knows.
Regardless of the reasoning, the Treasury yields initially reacted pretty much how we would expect. Yields moved lower following the weaker retail report.
That move didn’t last very long.
As the day went on, the 10 year reversed course and wiped out much of the progress we had made throughout the week.
So after getting what looked like three fairly positive economic reports for rates, we’re somehow ending the week pretty close to where we started.
Sounds about right.
With no major inflation reports due next week, we wouldn’t be surprised to see rates slowly work their way back down as the market continues to digest this week’s economic data, barring any major world events, of course.
Our next major inflation report is PCE, which we consider the most impactful of the bunch, and that’s scheduled for August 26th.
Until then, we’re not expecting any massive directional move unless something unexpected gives the market a reason to make one.
Then again, apparently the market doesn’t really care what we expect.
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