Overview: The biggest economic event over the past week, Wednesday’s Federal Reserve meeting, revealed no major surprises and caused little reaction. The most significant economic report released this week on consumer spending also had a minor impact, and mortgage rates ended with little change.
As expected, the Fed made no change in the federal funds rate. The primary focus for investors was the future path that officials anticipate for rates, and their median forecast remains for three 25 basis-point rate cuts this year. Interestingly, the consensus among officials grew tighter, meaning that there was less deviation in the higher and lower individual forecasts from the median. Officials also significantly raised their projections for gross domestic product (GDP) growth from the last set of forecasts three months ago, reflecting the generally solid economic data in recent months. Expectations for a reduction in the federal funds rate were little changed after the meeting, and investors anticipate that the first rate cut will take place in June or July.
After a very rough start to the year in January, consumer spending picked up in February, but by less than expected. Retail sales rose 0.6% from January, below the consensus forecast for an increase of 0.8%, and the weak results for the prior month were revised even lower as well. The strongest categories were motor vehicles/parts, electronics, appliances, and building materials. Retail sales were 1.5% higher than a year ago, roughly in line with historical averages, but this data is not adjusted for inflation. The rate of price increases over the past year has been unusually high, and retail sales have not kept pace. In other words, although consumers have been spending more, they have been getting less.
Additional housing inventory continues to be badly needed in many areas, and the latest data was encouraging. In February, single-family housing starts jumped 12% from January to the best level since April 2022 and were 35% higher than a year ago. Single-family building permits, a leading indicator of future construction, rose slightly to the highest level since May 2022. In addition, a separate survey of home builder sentiment on housing market conditions from the NAHB unexpectedly increased to the highest reading in eight months.
Retail Sales (% change)
Week Ahead
Mar. 21
Existing-Home Sales report
Mar. 25
New-Home Sales report
Mar. 28
Personal Income and Outlays
Personal Consumption Expenditures (PCE) Price Index