Posted by Sam Millette, April 19, 2021
Last week saw the release of a number of important economic updates, with most reports pointing toward a continued acceleration in the pace of the economic recovery. Highlights included a surge in March’s retail sales and housing starts, as well as a new low for the number of weekly initial jobless claims. This week will be relatively quiet, with a focus on March’s home sales reports.
Last Week’s News
On Tuesday, the Consumer Price Index for March was released. Consumer prices rose by 0.6 percent during the month, slightly above economist estimates for a 0.5 percent increase. This result brought the year-over-year increase in consumer prices up to 2.6 percent, following economist estimates for a 2.5 percent increase. Part of the larger-than-expected rise in consumer prices was due to rising gas prices, which went up notably in March. Core consumer prices, which strip out the impact of volatile food and energy prices, increased by 0.3 percent during the month and 1.6 percent year-over-year. Inflation remained muted throughout much of last year due in large part to the deflationary pressures created by the pandemic. This year, however, as the economic recovery has accelerated, we’ve seen an increase in inflationary pressure. Still, despite the rise in prices this year, the Fed remains committed to keeping monetary policy accommodative for the foreseeable future.
On Thursday, the initial jobless claims report for the week ending April 10 was released. The report showed that 576,000 initial unemployment claims were filed during the week, in an improvement from the 769,000 initial claims filed the week before. With a result well below economist estimates for 700,000 initial claims, the April 10 report marks the lowest number of initial claims in a week since the start of the initial lockdowns in March 2020. Although claims can be quite volatile on a week-to-week basis, we’ve seen improvement recently compared with the situation earlier in the year, when the third wave of infections caused the average number of weekly claims to increase notably. The progress on the public health front and the associated easing of state and local restrictions over the past two months have spurred the acceleration in the labor market recovery. This positive development should support the overall economic recovery as we head into the spring.
Thursday also saw the release of the March retail sales report. Retail sales surged past economist estimates, with the report showing a 9.8 percent increase in sales during the month. The forecasts had been for a 5.8 percent increase. Following February’s weather-driven decline in sales, this report was an encouraging development that signaled continued high levels of consumer demand. Additionally, this strong result represents the second-highest level of monthly sales growth on record. It trails only the 18.3 percent increase in sales we saw last May after initial lockdowns were lifted. Sales growth was widespread, as the core retail sales figure that strips out the impact of volatile auto and gas sales rose by a strong 8.2 percent, against forecasts for a 6.4 percent increase. Sales growth was supported by a return to more normal weather in March, as well as another round of federal stimulus checks hitting bank accounts. Encouragingly, spending at bars and restaurants showed solid improvement in March, likely due in large part to the easing of state and local restrictions that allowed for more in-person dining. Overall, this was a very strong report that bodes well for the pace of the economic recovery during the month and quarter.
Thursday also saw the release of the March industrial production report. Industrial production increased by 1.4 percent during the month, against calls for a 2.5 percent increase. This result represents a solid rebound following February’s weather-related 2.6 percent decline in production. Manufacturing output rose by 2.7 percent during the month, below economist estimates for a 3.6 percent increase. Still, this data represents the fastest level of monthly growth since July 2020. This swift return to growth following the weather-related disruptions in February is a positive signal that manufacturers increased production in March to meet high levels of buyer demand. Manufacturing confidence rose to a new post-pandemic high in March, which should support faster levels of manufacturing spending and output going forward. Ultimately, while industrial production and manufacturing output grew by less than expected during the month, this report showed solid signs of continued growth for producers.
The fourth major release on Thursday was the release of the National Association of Home Builders Housing Market Index for April. This gauge of home builder sentiment increased from 82 in March to 83 in April, in line with economist estimates. The index has rebounded swiftly after hitting a lockdown-induced low of 30 in April 2020. Low mortgage rates and shifting home buyer preference due to the pandemic have been fueling a rally for the housing sector over the past year. The improvement in April was driven by continued high levels of home buyer demand, as the report’s measure of prospective home buyer foot traffic hit its highest level since November 2020. The continued high level of prospective home buyer demand is encouraging, because it shows that rising mortgage rates did not dissuade would-be buyers during the month. Looking forward, home builders remain confident that they will be able to sell newly built units due to a shortage of available homes for sale. Nonetheless, rising lumber and construction costs may serve as a future headwind for significantly higher levels of home builder confidence.
On Friday, March’s building permits and housing starts reports were released. These two measures of new home construction rebounded in March following weather-related declines in February. Building permits rose by 2.7 percent during the month, against forecasts for a 1.7 percent increase. Housing starts soared by 19.4 percent, significantly above economist estimates for a 13.5 percent increase. This result brought the pace of housing starts to its highest level since 2006. While both starts and permits have been volatile on a month-to-month basis, both indicators have rebounded well ever since initial lockdowns were lifted last year. High levels of home builder confidence and low levels of available homes to purchase have spurred a surge in new home construction over the past year, with single-family housing starts seeing a significant increase. Overall, this encouraging report showed that home builders are continuing to increase construction despite the headwinds created by rising lumber prices and mortgage rates.
We finished the week with Friday’s release of the preliminary estimate of the University of Michigan consumer sentiment survey for April. This widely followed measure of consumer confidence increased from 84.9 in March to 86.5 in April, against forecasts for a further increase to 89. This result, which marks two consecutive months with improving confidence, brings the index to its highest level since the start of the pandemic. The most recent round of federal stimulus payments, as well as accelerating job growth in March, likely contributed to the improved consumer sentiment in April. The gauge of current economic conditions rose to a new post-pandemic high to start the month, while expectations for the future remained unchanged. Despite the miss against forecasts, this report was encouraging, as improving consumer confidence has historically supported faster consumer spending growth. Real work remains to be done to get the index back to the pre-pandemic high of 101 we saw in February 2020, but we’re heading in the right direction. Further improvements are expected as long as we continue to make progress on the mass vaccination and public health fronts.
What to Look Forward To
On Thursday, the initial jobless claims report for the week ending April 17 will be released. Economists expect to see 625,000 initial unemployment claims filed during the week, an increase from the 576,000 initial claims made the week before. Still, even with the anticipated rise in weekly claims, this report would represent the second-lowest number of initial claims since the start of the pandemic. It would also bring the four-week moving average of claims to a new post-lockdown low. Despite the progress made in getting the number of weekly initial claims down, however, work remains to be done to get back to pre-pandemic levels. For reference, in 2019 we saw an average of 218,000 weekly initial claims throughout the year. Given the relatively high level of weekly initial jobless claims we’ve been seeing, this report will continue to be widely monitored.
Thursday will also see the release of the March existing home sales report. Sales of existing homes are expected to decline by 0.3 percent during the month, following a 6.6 percent decline in February. Despite the anticipated decline, the pace of existing home sales has increased notably over the past year. If estimates prove accurate, existing home sales would be up by 15.9 percent on a year-over-year basis in March. Home sales have been buoyed by low mortgage rates and shifting home buyer preference due to the pandemic over the past year. Looking forward, a low supply of existing homes for sale, rising prices, and rising mortgage rates are expected to serve as headwinds for significantly faster sales growth. With that said, sales near current levels would represent a marked increase from the pre-pandemic pace of home sales, signaling continued high levels of home buyer demand.
On Friday, the March new home sales report is set to be released. The pace of new home sales is expected to increase by 12.9 percent during the month. Previously, in February, an 18.2 percent decline in new home sales brought their pace to a nine-month low. New home sales are a smaller and often more volatile component of total sales compared with existing home sales. Nonetheless, new home sales have increased compared with pre-pandemic levels. If estimates hold, the pace of existing home sales would be up by 42.9 percent on a year-over-year basis in March. Home builders have increased the pace of construction over the past year to meet rising home buyer demand. In addition, newly constructed units have been quick to sell ever since initial lockdowns were lifted last year. Ultimately, this report is expected to show continued high levels of home buyer demand in March, representing another sign that the housing market remains strong.
That’s it for this week—thanks for reading and stay safe!
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