Overview: Over the past week, investors remained focused on elevated levels of inflation and the resulting monetary policy tightening cycle from the Federal Reserve. While this week’s major economic data came in right on target, mortgage rates climbed to the highest levels since 2010.
Since consumer spending accounts for over two-thirds of U.S. economic activity, it is an important indicator of the economy’s health. In March, retail sales matched expectations with an increase of 0.5% from February and were 7% higher than a year ago. Higher gas prices caused a surge in spending from the prior month, and general merchandise stores also saw sizable gains. Despite rising prices, consumer spending has remained quite strong so far this year.
Higher mortgage rates have taken a toll on recent housing market activity. Sales of existing homes matched expectations in March, dropping modestly from February, and were 5% lower than last year at this time. Already historically low inventory levels dropped another 10% from a year ago, and stand at just a 2-month supply nationally, well below the 6-month supply that is considered a healthy balance between buyers and sellers. The steadily rising median existing-home price was 15% higher than last year at this time at $375,300, a record high. With the shortage of available homes in many areas, investors have been closely watching the monthly reports on housing starts, and the most recent data contained mixed news. In March, housing starts increased slightly from February to the highest level since 2006, due to gains in multi-family units. Single-family starts declined a bit from February, but they remained well above the levels seen prior to the pandemic. Higher prices and shortages for land, materials, and skilled labor remained obstacles to a faster pace of construction.
Retail Sales (% change)
Apr. 26 — New-Home Sales report
Apr. 28 — First-quarter gross domestic product (GDP)
Apr. 29 — Core Personal Consumption Expenditures (PCE) Price Index