Key Economic Indicators that Affect Mortgage Interest Rates: Consumer Behaviors


Throughout the year, reports are released that provide us not only with a look at the current state of the economy, but insight into potential economic trends that could be headed our way. And because these economic indicators can cause mortgage rates to move on a monthly, weekly and even daily basis, it’s especially helpful for home buyers, owners and refinancers to fully understand and follow these reports so they can make informed decisions when needed.

Over the next few days, we’ll be taking a look at various indicators in the categories of consumer behavior, jobs and housing, and why they are ones to keep an eye on if you’re considering a new home purchase or refinance. We’ll start by diving into four widely followed reports based on consumer behaviors and how they can impact interest rates:

Gross Domestic Product

Gross Domestic Product (GDP) measures the market value of all goods and services produced in the U.S. and shows us how much the economy is growing or contracting each quarter. Stronger GDP causes interest rates to rise, while weaker GDP causes rates to fall. GDP is updated three times throughout the quarter as data comes in and these revisions can add to rate volatility as they trade daily.

For previous GDP reports and upcoming release dates, click here.

Consumer Price Index

The Consumer Price Index (CPI) measures the changes in prices paid for consumer goods and other services purchased by households, and is one of the two most common indicators of consumer inflation – the other being the Personal Consumption Expenditures index. Rates are sensitive to CPI because if market investors think their future rate of return on their investments won’t keep up with rising inflation cost, they will sell their investments, causing rates to rise. In other words, higher CPI means higher rates, and lower CPI means lower rates. Since the financial crisis of 2008, CPI has been relatively low, but an improving economy typically results in inflation and increased interest rates.

To see when the next CPI report will be released, click here.

To see when the next PCE report will be released, click here.

Producer Price Index

While the CPI measures changes in the prices paid for goods, the Producer Price Index (PPI) measures the changes in prices received for goods by producers in the U.S. It’s one of many producer inflation measures to determine the health of goods-producing sectors of the economy, like mining, manufacturing, agriculture, fishing, forestry, natural gas, electricity and construction. Rate markets react the same to PPI as they do to CPI and PCE—rates generally rise with rising PPI and fall with lower PPI.

To see when the next PPI will be released, click here.

Consumer Confidence Index

The Consumer Confidence Index (CCI) is designed to measure consumers’ optimism surrounding the state of the economy and is based on the results of the Consumer Confidence Survey. The survey is administered to 5,000 households every month. Participants are asked five questions, two about current economic conditions and three about future expectations. Participants can only respond with positive, negative or neutral. If the CCI measures consumer optimism high, the idea is that consumers are likely to purchase more goods and services, and an increase in consumer spending helps stimulate the economy.

The Conference Board releases the CCI on the last Tuesday of every month. For more information regarding the latest CCI, click here.

So you may have already started seeing a trend here – increases in these indicator reports can stimulate an increase mortgage interest rates, which may be a concern if you’re shopping for a mortgage. But, increases are also sign of an improving economy and as long as you’re finding yourself in a financially healthy position, there’s little to be worried about. We’ll continue our series by taking a look at U.S. employment.

Want to know the latest on how these reports are impacting rates? Feel free to contact a trusted RPM loan advisor who will explain it in simple terms so you can better understand your financing options and make the choices that are right for you.

By Kendall Taylor