Consumer Confidence Doesn’t Say Much, But We Have To Pay Attention Regardless

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Using Google Trends, we can see that "recession" is overtaking "inflation" in import.

Mortgage rates are highly dependent on inflation, and/or the absence of inflation.  Because inflation erodes the value of the U.S. dollar, it also erodes the value of dollar-denominated mortgage bonds. 

This renders bonds less valuable to global investors and that forces mortgage rates higher.  This is different from recession's impact on mortgage rates. 

A recession doesn't necessarily make the dollar stronger the way that inflation makes the dollar weaker and so we can't know for sure what mortgage rates will do during periods of economic contraction.

One thing that market participants do know is that everyday people are extremely important to the U.S. economy; consumer spending accounts for 70% of the fuel in the economic engine.

This puts undue influence on consumer sentiment surveys. 

Market participants use consumer sentiment surveys to predict how consumers will spend their money, and then they place bets on whether the economy will grow or shrink.  Growth can lead to inflation and that tends to make mortgage rates worsen.

For better or worse, the connection isn't there.  The chart above makes it pretty clear.  But that doesn't stop Wall Street from reacting to it. 

For that reason, we almost have to pay attention to the data (even though it's semi-useless).

So, today, we'll see the first of two consumer surveys this week.  Markets will use the surveys to gauge whether Americans will spend their way out of a recession, or keep the purse strings tight as we fall deeper into one.

If confidence is improving, expect mortgage rates to increase on expectations of economic growth and inflation.  If confidence is falling, expect mortgage rates to fall.