Frank Nothaft Consumer Quotations

The Producer Price Index for April, released today, showed a considerably larger decline than had been expected, reaffirming market concerns about the state of the economy. However, the Consumer Price Index for April that will come out tomorrow will give us a much more comprehensive picture of what is actually happening.

The Consumer Price Index released this week showed no decline, suggesting that the possibility of deflation is still low. Housing starts were stronger than expected, as were the leading indicators released today. All of these reports together could indicate the economy is ready to pick up growth.

The Federal Reserve's recent cut in interest rates and a continued concern over weakness in the overall economy contributed to another drop in mortgage rates this week. In spite of the slowdown in other sectors and a lessening of consumer confidence, declining mortgage rates since the first of the year have helped to support housing activity.

The strength in employment growth and an unexpected jump in consumer credit in January helped push mortgage rates a little higher this week. While long-term interest rates are at the highest level since May of 1998, they are still very affordable, particularly when compared to the 1970s and 1980s.

There seems to be some concern in the marketplace that the economic recovery will be slower than expected , lessening the fear of inflation. As a matter of fact, personal income and consumer spending growth for the first quarter were moderate and showed inflation to be well constrained.

Mortgage rates fell this week as a result of the Consumer Confidence report , which hit a 4-1/2 year low. Lower confidence translates into slower consumer spending. Less spending means less growth, and less growth means less inflationary pressure, keeping mortgage rates affordable.

Consumer spending has kept the economy moving, and when initial holiday sales were better than expected, financial markets reacted with enthusiasm. It was this potential pick-up in the economy that caused interest rates, including mortgage rates, to drift upwards this week.

With mortgage rates low and consumer confidence high, Freddie Mac economists expect the housing market to remain strong in the months ahead.

Low rates combined with the up-tick in consumer confidence are strong indications that the housing market will continue to prosper into the summer months,

There is a slight chance the Federal Reserve Board will raise rates when it meets later this month, but with the current labor market and slowing consumer spending, it is more likely that it will take no action until August at the earliest. As a result, short-term interest rates, such as the one-year adjustable-rate mortgage, drifted further down this week.