While Europe and the Fed have been the major headlines recently, the economic data was clearly the main focus over the past week. Stronger than expected data was a positive surprise to many economists, but was bad news for mortgage rates, which moved considerably higher.
On Friday, the biggest economic report of the month, the Employment data, showed that the economy added more jobs than expected in February. The Unemployment Rate declined from 7.9% to 7.7%, the lowest level since December 2008. Wednesday’s Retail Sales report showed that February Retail Sales increased 1.1% from January, far above the consensus of 0.5%, and the quickest monthly pace since September.The strong results are even more surprising given the concerns caused by a lack of political agreement on the budget, increased payroll taxes, and higher gas prices. All of this was expected to hurt hiring and consumer spending, but the recent data has contradicted this view. The improving economic outlook has lifted the stock market and increased the willingness of people to purchase homes. Unfortunately, stronger economic growth causes mortgage rates to rise.
Looking ahead, attention will turn to the Fed meeting next Wednesday. Investors will be looking for signs of the impact of recent strong economic data on Fed policy. Another focus for investors is the March 27 budget deadline. Congress must take action by then to keep funding the federal government.