Kicking off this morning's batch of economic data was April's Producer Price Index (PPI) that showed inflationary pressures at the wholesale level of the economy were much softer than expected. The overall PPI fell 0.5% last month when it was expected to rise 0.3%. There was a similar surprise in the core reading that excludes more volatile food and energy costs. April's core PPI was predicted to rise 0.3%, but actually fell 0.4%. On an annual basis, the overall PPI matched forecasts of a 2.4% pace while the core data came in at a slightly stronger than expected 3.1% rate. Sizable upward revisions to both of March's monthly readings mean inflation was stronger than previously thought in March. However, the surprise in April's numbers allow us to label the report good news for bonds and mortgage rates.
Today's second major release was April's Retail Sales report. It revealed consumer spending rose 0.1% last month, matching forecasts. A secondary reading that excludes more volatile and costly auto transactions showed a 0.1% increase that fell short of the 0.3% that was expected. There were also sizable upward revisions to March's data that skew this April's figures a little. However, we are still considering the report to be favorable for rates, partly because they were considerably slower than March's pre-tariff spike.
The third 8:30 AM ET release this morning was uneventful. Last week's unemployment figures indicated 229,000 new claims for jobless benefits were filed. This was unchanged from the previous week's revised total and pegged forecasts. That makes this weekly snapshot neutral for bonds and mortgage rates as it has had no impact on this morning's rates.
Fed Chairman Powell's speech this morning didn't give us any significant surprises. He warned that the economy may be in for more frequent and persistent supply chain issues as a result of tariffs and other administration policies. This could make the Fed's job of controlling inflation more difficult and mentioned changes may be needed in the Fed's communications and their monetary policy framework. His words came during a speech in Washington DC. His speech appears to be middle of the road for bonds, meaning not overly friendly or concerning.
Today's final relevant report was April's Industrial Production data at 9:15 AM ET. This report tracks output at U.S. factories, mines and utilities to give us a sign of manufacturing sector strength. It showed no change from March's production, signaling flat manufacturing activity. Since forecasts had production rising a little, the weaker number is good news for bonds and mortgage pricing.
Tomorrow morning has two more economic releases that we will be watching. April's Housing Starts report gives us a hint of housing sector strength and mortgage credit demand by tracking newly issued permits and actual starts of new home construction. It is expected to show a small rise in new construction starts, pointing to modest strength in the new home portion of the housing sector. This report is not known to be a big mover of mortgage rates, so it likely will have a minimal impact on rates regardless of what it reveals.
May's preliminary reading to the University of Michigan's Index of Consumer Sentiment will close out this week's calendar at 10:00 AM ET tomorrow. This index shows consumer willingness to spend, which relates to actual consumer spending. If consumers are more confident in their own financial situations, they are more apt to make large purchases in the near future. This report usually has a moderate impact on the financial markets though, because it is not exactly factual data. It is expected to show a reading of 53.0, up from April's final reading of 52.2, meaning consumers are a little more confident than last month. If it shows a decline in confidence, bond prices could rise and mortgage rates may move slightly lower because waning confidence usually translates into softer consumer spending that restricts overall economic growth.
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