Economic Commentary for February 5th, 2015: Small Miss on GDP

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It has been a volatile period for mortgage rates since the January 28 Fed meeting. Mortgage rates improved on Friday following weaker-than-expected GDP data, but they have climbed every day since then. Mortgage rates ended the week a little higher.

The first reading for fourth-quarter gross domestic product (GDP), the broadest measure of economic activity, showed growth at an annualized rate of 2.6%. This was a little below expectations and down from 5.0% growth in the third quarter. Slower growth reduces future inflationary pressures, so the GDP data was positive for mortgage rates. Investors are aware, though, that revisions to GDP can be large. The first reading for third quarter GDP was just 3.5%.

After large moves lower in stocks, oil, and bond yields last month, all three changed direction over the last couple of days. Markets often overshoot in the short-term, and minor corrections such as these are quite common, even without any change in the economic outlook. Oil prices, for example, dropped from around $100 per barrel over the summer to a low of $43 in late January, before bouncing back above $50 this week. Similarly, mortgage rates ended January at the lowest levels in over a year and then turned a little higher. The fundamentals supporting low mortgage rates, including low global inflation rates and weak global growth outside the U.S., have not changed.

Looking ahead, the key Employment Report will be released on Friday. It is expected that the U.S. will have added 230K jobs in January. Another significant labor market report, JOLTS, will come out on February 10. JOLTS measures job openings and labor turnover rates. After that, Retail Sales, which make up roughly 70% of economic activity, will be released on February 12.

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