Mortgage Rates Improve Despite Strong Data

This week's economic data showed higher than expected levels of economic growth and inflation. A weaker dollar has boosted the manufacturing sector and overall economic activity over recent months. Revisions made to second quarter Gross Domestic Product (GDP) showed stronger than expected growth of 3.3%, far above the original reading of 1.9%. Durable Orders and the Chicago PMI national manufacturing index also far exceeded the consensus forecasts. The dollar has risen against other currencies this month and many foreign economies are slowing, so investors expect exports to fall later in the year. Investors seem to have focused on the outlook for lower future readings, rather than this week's unexpectedly strong data, and mortgage rates improved during the week.
The story is similar for inflation. The July Core PCE price index, the Fed's preferred inflation indicator, rose to a 2.4% annual rate. The Fed would like to see this reading drop below 2.0%. With slowing worldwide economic growth and the recent drop in oil prices, many investors believe that this will happen. This week's release of the Fed minutes from the August 5 meeting confirmed that Fed officials expect inflation to moderate as well.
In the housing market, the news was mixed. July Existing Home Sales rose 3%. For several months now, activity levels have held above the recent lows. Inventories of unsold homes climbed to a record high, however. July New Home Sales fell slightly.