Economic Update

The economic data released last week was positive for the economy, with stronger than expected economic growth and lower than expected inflation.  Retail Sales, Industrial Production, and Housing Starts all exceeded their consensus forecasts. Weekly Jobless Claims fell to the lowest level since April and the NAHB Home Builder Confidence Index rose to the highest level since May 2010. Meanwhile, Core CPI inflation was a modest 2.1% higher than one year ago. For mortgage rates, the tame inflation data was positive, while the relatively strong growth data was negative.

Investors continue to closely monitor the debt troubles in Europe. While Italy’s bond yields remained below the highs reached last week, bond yields in France and Spain climbed to new highs. Investors are concerned that nearly every euro zone country except Germany is at risk of seeing a sharp rise in yields, which will make it even more difficult to meet their debt obligations. Weaker euro zone countries are increasingly looking to Germany for additional aid, but the Germans are reluctant to bear the cost. The level of aid provided by Germany, most likely through the European Central Bank (ECB), will heavily influence the ability of the other countries to resolve their debt problems.

Ahead of Thanksgiving, Existing Home Sales will be released on Monday, revisions to third quarter Gross Domestic Product (GDP) Tuesday, and Durable Orders, Personal Income, Core PCE inflation, and Consumer Sentiment Wednesday. The FOMC Minutes from the November 3 Fed meeting will also be released on Wednesday. There will be Treasury auctions on Monday, Tuesday, and Wednesday. MBS markets will be closed on Thursday for Thanksgiving, but they will be open on Friday.