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Holiday Spending APPEARS To Be Lower, But It Isn't Really Lower

During the Holiday Season, economists watch consumer spending intently because it makes up two-thirds of the U.S. economy.

When spending is stronger-than-expected, it can lead to inflation which pushes mortgage rates higher.

So far this season, mortgage shoppers should be in good spirits.  Sales have fallen four weeks in a row and the outlook for a late-December rally are bleak.

But there's more to the story than the headline, though.

When store report "sales" data, they don't report gift card sales.

Gift cards are only accounted for when they are redeemed for actual store merchandise. 

So, with gift card sales projected to reach $26 billion this year, there is a $26 billion "shortfall" in the sales figures.  That $26 billion will likely get booked in January when shoppers spend their "free money".

For as much as mortgage rates may fall on weak sales data in December, therefore, rates could surge higher when January's sales data is released.

Higher sales levels can lead to inflation and that is the enemy of mortgage bonds.  WIth inflation comes higher mortgage rates.

Source
Retail Rush Falls Short, Now Come More Sales
Kris Hudson, Ann Zimmerman And Vanessa O'Connell
The Wall Street Journal Online, December 26, 2007
http://online.wsj.com/article/SB119859964475049505.html