The economy is in recovery. Or so we hear. There appears to be a lot of data in support of the argument:

• Existing Home Sales are up 24 percent in twelve months
• Credit markets appear markedly stable as compared to last year
• The stock market is touching 13-month highs

And while this has been happening, there's been nary a peep from inflation.

In most circumstances, we'd label the argument Case Closed, recession over, blue skies ahead.  Only, this isn't most circumstances.  And a major component of the economy is conspicuously absent -- consumer spending.

Consumer spending is a U.S. keystone, accounting for 70% of the economy.

Without consumer spending, we can't pronounce the recession's death.  Wall Street knows it.  As a consequence, Retail Sales data is the Economists' World equivalent of a rock star this season, getting scrutiny and attention well beyond its data-modeled peers.

The audit's also bringing focus to Consumer Confidence data.

Many analysts believe that confidence correlates to spending.  Looking at the trendline chart, they've got good reason -- there relationship between sales and confidence appears to be direct.  But there's some analysis worth doing, too.

• In a "healthy" economy, consumers spend more than their confidence suggests
• In a "sick" economy, consumers spend less than their confidence suggests

In other words, because our current economy is not yet recovered and because joblessness rests north of 10 percent, expect holiday sales to drag this year.  Consumers will spend even less than they themselves tell the pollsters they're planning to spend. Fear will rule the (shopping) day.

For mortgage rate shoppers, it's wonderful news.

As consumer spending drags, economic doubts will linger.  Tough recovery questions will resurface for 2010 and, until they're retired, mortgage rates won't have much reason to jump. Rates will be way up some days and nicely down on others, but, absent a complete shocker, look for mortgage rates should bounce within the same 5.250% range in which they've resided for the past 12 months.

Predicting mortgage rates is an inexact science but sometimes there are clues to help you. Make consumer confidence and retail sales data two of your guiding lights.  Then, follow me on Facebook or on Twitter to see what the market's doing in real-time.

When you're ready to lock or need a rate quote, . I lend in most states and if I can't help you, I'll point you to a resource that can. I answer all my own emails and my rates are always excellent.

Costco is celebrating Christmas.  It's not even Halloween yet. 

By moving the Holiday Shopping season up by three weeks, I can't help but wonder how this might skew the Retail Sales data released for November and December. 

If consumers do their shopping now, Retail Sales should fall short of expectations for November and/or December and that will lead analysts to believe that Americans are consuming fewer goods. 

Because consumer spending accounts for two-thirds of our economy, weak Retail Sales data during the peak of the Holiday Shopping season may be interpreted to mean that the economy is slowing down when, in fact, it's not -- it's only facing a displacement of just a few weeks.

Looking long-term, this bodes well for mortgage rates.  When markets think the economy is weakening, it tends to drag down mortgage rates, too.  Maybe we'll see that through December and January, giving a boost to housing during a traditonally weak time of year.

But, that said -- November 14 is the next Retail Sales report.  If Costco and other retailers succeed in jump-starting holiday sales, we can assume that November's data will be stronger than expected, thereby pushing mortgage rates higher.

When consumer spending slips, it can send shockwaves through the economy.  Consumer spending, after all, makes up 70% of the economy.

The best measure of consumer spending data is Retail Sales, a monthly figure describing how much money Americans are spending, and where they're spending it.

Retail Sales unexpectedly fell in April.  Against expectations of a 0.4% increase, sales were down 0.2% in April.  Normally, that would usually push mortgage rates lower on the prospect of a slowing economy. 

This month?  Not so much.

Why? Because the downturn was clearly led by the performance (or lack thereof) in the Building and Garden Stores sector whose sales decreased by 2.3% month-over-month.  As a result, the industry served as a parachute on spending that is otherwise consistent and strong.

Nationally, housing is a dog with fleas and that's neither a secret nor a surprise.  Traders are so tuned in to weakness in housing -- and have been for so long -- that they aren't changing their mortgage market positions based on it.

It's no longer hip to trade on housing sector news.

So, as the Building and Garden sector lays an egg and drags down the overall Retail Sales figures, markets shrug.  Of course, fickle sentiments could change by next week when we get to see April's Housing Starts data.

Second time in a week, folks.  When you get your news, make sure that you read more than the headline.

Flashback 7 days.  The Non-Farm Payrolls report hits the wire screaming "Jobs Report Falls Flat at 51,000 -- Analysts Expected 125,000". 

Pop quiz, Hotshot: What do you do?

If you were like the other headline-reading traders, you quickly bought bonds because you thought yields were about to drive down.  You made money, too --  for about 20 seconds.

Once the other traders read the rest of the report, it showed that the jobs report was actually pretty strong.  They sold bonds and your gains vanished.  And then some.

The headline, it appears, wasn't telling the whole story.

Flash forward to this morning. 

The Retail Sales report was set to release and markets want if consumers are still spending with vigor.  Traders know that the Fed watches Retail Sales for inflationary pressures on the economy.  Abundant spending is a signal that inflation could creep.

When the headline hit the newswires, it reads "Retail Sales Fall 0.4%, Well Short of Analysts' Expectation of a 0.2% Gain".  What do you do?

If you were like the other headline-reading traders, you quickly bought bonds because you thought that yields were about to dive down.  Less spending means fewer inflationary pressures.  You made money, too --  for about 20 seconds.

Once the other traders read the rest of the report, it showed that falling gas prices was the major contributor to the drop.  Excluding gasoline, Retail Sales acually registered a 0.6% gain -- creaming analysts estimates.  Mortgage bonds reversed.  The headline wasn't telling the whole story.

American consumers are quite predictable, at times.

As expected, mortgage rates are running higher today and have all but erased the gains of the last three weeks.

HAccording to December 2005 Retail Sales data, it was a sad Holiday Season for retailers this Christmas.

But don't starting think that high gas prices are taking a toll on spending.  Spending is doing just fine, thankyouverymuch.

See, Retail Sales data ignores in the most popular Holiday Season gift -- the gift card. 

Gift cards purchases are not actually put on the books until they're used to purchase actual goods.

Post-Christmas, when stores are full of shoppers toting gift cards, the Retail Sales data starts to register.  If you've been in Best Buy lately, you've seen it personally -- those holographic gift cards are everywhere. 

The cashing in of gift cards should boost to January's Retail Sales data nationally.

But there should be a secondary bump in January's Retail Sales data, too.

When a person redeems a $50 gift card, he rarely spends 50 dollars.  Maybe it's $55, or it's $70, or more.  Regardless, the store is booking more than $50 on that $50 card.  This is one reason why stores love the gift card -- the built-in upsell.

Until that upsell is recorded, though, Retail Sales data will continue to be flawed and/or somewhat "delayed".  Look for a strong January figure.