The FOMC decision took center stage this week amid an otherwise light economic calendar. As widely expected, the Federal Reserve did not make any major changes to the federal funds target rate or pace of balance sheet runoff. Wednesday’s meeting was not entirely devoid of new information, however. In the press conference, Chair Powell seemed to downplay the relatively hot inflation prints so far this year and reaffirmed that less restrictive monetary policy is coming closer into view. The FOMC’s latest Summary of Economic Projects also provided some noteworthy changes. For more details, please see the Interest Rate Watch section.
Although thin, the stream of incoming data received in recent days indicates that the U.S. economy is still expanding at a solid pace with the housing sector continuing to provide a tailwind. Residential fixed investment—which is a component of total GDP and mostly includes spending on new housing construction, brokers commissions from home sales and home improvements—declined sharply in 2022 and the first half of 2023 as the Fed tightened monetary policy and interest rates shot higher. More recently, however, a turnaround has become apparent. Residential investment rose solidly during the second half of 2023 and, if this week’s slew of housing data are any guide, should expand further in the coming quarters.
Lower mortgage rates are poised to further boost the residential sector this year. Since peaking around 8% last October, the average 30-year mortgage rate has receded and averaged 6.7% so far this year. Even this slight decline in financing costs looks like it was enough to have pulled affordability-crunched buyers off the sidelines. After rising solidly in January, existing home sales topped expectations and surged 9.5% during February. Although still relatively slow, last month's 4.38 million-unit pace marks the strongest pace in a year. The recent plateau in mortgage applications for purchase suggests that home sales may not move at quite the same pace in the coming months. During the week ended March 15, mortgage purchase applications fell slightly and, on balance, have moved more or less sideways so far in 2024. That noted, resales should continue to improve over the longer run as easier monetary policy brings about a gradual decline in mortgage rates.
An improving resales trend should translate to growth in brokers commissions, especially as low supply continues to exert upward pressure on home prices. However, strengthening single-family construction is likely to continue as the primary force behind expanding residential investment. On balance, total housing starts have been essentially flat over the first two months of the year, as February’s surge in overall starts made up for a sharp weather-induced drop in January. The number of residential groundbreakings moving sideways is largely a result of an ongoing downdraft in multifamily construction, which has offset gains from single-family projects. Multifamily development, which comprises a smaller share of investment, is downshifting in the wake of softening apartment market conditions and tighter construction lending. By contrast, single-family starts have steadily trended higher over the past year. Single-family permits have taken a similar upward trajectory, with permits climbing again during February. The gain in permits suggests that home builders are planning to scale up production in light of improving economic growth prospects, the increased ability to offset higher interest rates with pricing incentive and higher confidence that adverse affordability and availability in the resale market will translate to stronger sales in the future.
February's rise in single-family permits was one factor behind the recent upturn in the Leading Economic Index (LEI). The LEI advanced 0.1% in February, the first monthly gain in nearly two years. ISM manufacturing new orders, consumer expectations and the interest rate spread continued to weigh on the headline index. On the plus side, the average weekly hours component provided a substantial lift, while stock prices continued to gain over the month. Another contributor to the upswing was initial jobless claims. During the week ended March 16, jobless claims fell to 210K from 212K the week prior. Overall, applications for unemployment insurance remain subdued, or as Chair Powell put it at the FOMC press conference on Wednesday, “very, very low.” All told, the low level of claims indicates that the labor market is still holding up quite well, which only bolsters our expectation for the turnaround in the residential sector to continue as a tailwind for economic growth throughout in 2024.
This Week's State Of The Economy - What Is Ahead? - 01 July 2022
Wells Fargo Economics & Financial Report / Jul 14, 2022
As with the Mets and Yankees when they ran into the Astros over the last couple days, consumers staying power is showing signs of running out as inflation persists and confidence moves sharply lower.
This Week's State Of The Economy - What Is Ahead? - 12 May 2023
Wells Fargo Economics & Financial Report / May 17, 2023
In April, the CPI rose 0.4% on both a headline and core basis, keeping the core running at a 5.1% three-month annualized rate. However, details pointed to price growth easing ahead.
This Week's State Of The Economy - What Is Ahead? - 25 September 2020
Wells Fargo Economics & Financial Report / Sep 28, 2020
Existing home sales rose 2.4% to a 6.0-million unit annual pace. The surge in sales further depleted inventories and pushed prices sharply higher.
This Week's State Of The Economy - What Is Ahead? - 19August 2022
Wells Fargo Economics & Financial Report / Aug 23, 2022
July data indicates that we celebrated a decline in gas prices by going shopping, boosting retail sales figures. I’m not sure I get the connection...
This Week's State Of The Economy - What Is Ahead? - 11 September 2020
Wells Fargo Economics & Financial Report / Sep 14, 2020
In the holiday-shortened week, analysts’ attention remained on the progress of the labor market. Recent jobless claims data remain stubbornly high and point to a slowing jobs rebound.
This Week's State Of The Economy - What Is Ahead? - 02 December 2022
Wells Fargo Economics & Financial Report / Dec 08, 2022
Total payrolls rose by 263K in November, with the unemployment rate holding steady at 3.7% and average hourly earning rising by 0.6%.
This Week's State Of The Economy - What Is Ahead? - 24 February 2023
Wells Fargo Economics & Financial Report / Feb 28, 2023
Existing home sales declined 0.7% in January, while new home sales leaped 7.2%. Real personal spending shot higher in January, and solid growth in discretionary spending suggests continued consumer resilience.
This Week's State Of The Economy - What Is Ahead? - 07 April 2023
Wells Fargo Economics & Financial Report / Apr 10, 2023
Employers added jobs at the slowest pace since 2020 in March, job openings fell and an upward trend in initial jobless claims has emerged.
This Week's State Of The Economy - What Is Ahead? - 30 October 2020
Wells Fargo Economics & Financial Report / Oct 27, 2020
Real GDP jumped a record 33.1% during Q3, beating expectations. A 40.7% surge in consumer spending drove the gain.
This Week's State Of The Economy - What Is Ahead? - 05 August 2022
Wells Fargo Economics & Financial Report / Aug 08, 2022
The Bureau of Labor Statistics reported this morning that nonfarm payrolls increased 528,000 for the month of July, easily topping estimates, lowering the unemployment rate to 3.5%.
