The mortgage market beat a hasty retreat back to the price lows of the month this morning after reports on November retail sales and producer prices implied economic growth accelerated sharply in the current quarter. A stronger economy tends to push capital toward riskier assets like stocks at the expense of safe-haven assets like mortgage-backed securities.



The Commerce Department reported this morning that retail sales increased a solid 0.8%, advancing for a fifth straight month. November's gain came on top of an upwardly revised 1.7% gain in October. Excluding autos, growth was even faster in November, up 1.2%, after running at a slower pace in prior months. Consumers' spending behavior clearly shows increased optimism over the course of the last ninety-days. While the improved consumer outlook is good news for the prospects of future economic growth - it tends to be bad news for the potential of notably lower mortgage interest rates.



In a separate report the Labor Department said wholesale costs in November rose 0.8% -- the largest month-over-month increase in the past eight months. The big gain in the headline number was largely attributable to higher gasoline, heating oil, and fruit prices. Excluding the more volatile food and energy costs, the "core rate" of inflation at the producer level posted a more modest 0.3% gain. The trend trajectory of consumer demand may be reaching a high enough point that wholesalers may finally be able to push through their increased costs in the form of price increases. The mere whiff of these inflation implications were enough to pressure mortgage interest rates higher.



The last scheduled meeting of the Federal Open Market Committee got underway this morning at 8:30 a.m. and will conclude with the release of their post-meeting statement at 2:15 p.m. this afternoon. The message from the Fed is expected to include an acknowledgment that the economic outlook has improved over the past three months - but not at strong enough pace that committee members will likely consider scaling back their current $600 billion "QE2" spending spree. This event will not likely exert any influence on the direction of mortgage interest rates today.