Ouch!

Will exceptionally strong post-thanksgiving retail sales push rates higher?
By MortgageDaily.com staff
11/26/2001

Thanksgiving weekend retail sales were surprisingly better than expected. In a television interview Sunday, U.S. Treasury Secretary Paul O'Neill reportedly said, "the number that I saw early this morning indicated holiday sales on Friday were 4% over a year ago." The interview was reported by Dow Jones Newswires (DJ).

Reuters reported that U.S. consumers mobbed shopping malls Friday, "chasing deep discounts offered by retailers desperate to salvage the holiday selling season from the grip of economic gloom, layoffs and the attacks of Sept. 11." Reuters told of Chicago-area retailers drawing early crowds on Friday with specials only available in the a.m. hours. Kmart was reportedly open on Thanksgiving day, and remained open for 66 hours straight from 5 a.m. Friday until 11 p.m. Sunday.

Reuters went on to say the better-than-expected turnout, despite forecasts for holiday gloom, sent shares of retail firms higher Friday. The Standard and Poor's retail index reportedly rose almost 14 points, or 1.6 percent, to 894.05.

While shares of many mortgage companies were up on Friday, mortgage companies are unlikely to be among the beneficiaries of such positive news. The numbers are more likely to encourage a flight from Treasuries to equities, pushing Treasury yields and mortgage rates higher and hurting mortgage production. Last week, the Mortgage Bankers Association of America reported that applications for refinances fell almost ten percent from the prior week, reflecting a recent rise in mortgage rates.

In its story, DJ reported that the Treasury Secretary said that a recession is defined as two consecutive quarters of negative growth. The third quarter was negative, but the second quarter was positive. "We'll see about the fourth quarter," Mr. O'Neill was quoted as saying.

In its weekly commentary Wednesday, HSH Associates said, "if the economy has bottomed, many thousands of people won't lose their jobs this holiday season, and their purchases of goods and services will help provide jobs for others, and so on. Maybe rates aren't (temporarily, at least) at 35-year lows, but that can't be considered 'high' by any stretch of the imagination."

While the retail sales data will likely push mortgage rates higher, DJ also reported that the National Bureau of Economic Research is poised Monday to declare that the U.S. is in recession and has been for months. Such a declaration is unlikely to put any further pressure on mortgage rates and could push rates down.

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