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Consumer Spending Falls

Overview: The bank troubles last month caused investors to shift to safer assets such as bonds, which pushed mortgage rates lower. As time has passed without additional problems emerging, investors have been gradually reversing this move, a trend that accelerated this week as banks reported solid earnings. The economic data released over the past week caused little reaction. As a result, mortgage rates ended higher.


Since consumer spending accounts for over two-thirds of U.S. economic activity, the Retail Sales report is highly anticipated. It is often very volatile from month to month, as has been the case so far this year. After a huge increase of 3% in January, retail sales fell modestly in February and plunged another 1% in March, far more than the consensus forecast for a decline of 0.5%. While consumers spent more on certain necessary items (such as groceries), declines were seen in a wide range of areas including autos, furniture, appliances, and building materials. Smaller tax refunds than last year due to cuts in some pandemic-related tax breaks likely contributed to the weakness in spending in March.

With still far fewer owners than usual putting their homes up for sale, additional home inventory has been badly needed for quite a while, and the latest data was somewhat encouraging. In March, total housing starts fell slightly from February and were 17% lower than a year ago. However, the weakness was entirely due to multi-family units, and single-family starts rose 3% from March. Building permits, a leading indicator of future activity, told a similar story. While total permits fell 9% from March, single-family permits increased 4%.

A separate report released this week revealed that builders are more optimistic about future conditions. The National Association of Home Builders (NAHB) housing index showed that home builder confidence rose to 45, the highest reading since September. According to the chief economist of the NAHB, over 30% of current housing inventory is new construction, far above levels around 10% seen during typical market conditions (when the inventory of existing homes for sale is much higher.) In addition to elevated mortgage rates, builders reported that higher prices for materials and skilled labor continued to hold back a faster pace of construction.


Retail Sales (% change)

Week Ahead

April 20 — Existing-Home Sales report

April 27 — First-quarter gross domestic product (GDP)

April 28

Personal Income and Outlays

Personal Consumption Expenditures (PCE) Price Index


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