Market Perspective

Consumer Spending Rallies, Housing Starts Soar


Overview: With the distribution of the coronavirus vaccine and the reopening of the economy, investors have been anticipating very strong economic reports. While this week’s consumer spending and housing data exceeded even these elevated expectations, its impact was minor, and mortgage rates ended the week with little change.

Since consumer spending accounts for over two-thirds of all economic activity in the U.S., the retail sales data is a key indicator of growth. Severe weather in many regions negatively affected the results in February, but the data for March released this week was even stronger than expected. In March, retail sales jumped a powerful 9.8% from February, well above the consensus forecast of 6% and the largest increase since May 2020. The strongest gains were seen in areas helped by the reopening of the economy, such as restaurants, clothing, and sporting goods stores. The distribution of government stimulus checks was a crucial factor behind the surge in consumer spending.

A lack of inventory of homes for sale has been a significant issue for the housing market for quite a while, so this week’s report on housing starts was encouraging. In March, starts rose 19% from February to the highest level since 2006. Both single-family and multi-family units posted nice gains. Building permits, a leading indicator of future activity, also showed solid improvement. Homebuilders cite a lack of skilled workers and rising material costs as the primary obstacles to an even faster pace of new construction.

Retail Sales (% change)

Week Ahead

April 22 — European Central Bank meeting

April 22 — Existing-Home Sales report

April 23 — New Home Sales on Friday

April 28 — Federal Reserve meeting

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