A look back at the March 18 week sees the economic data pale in comparison to the implications of the FOMC meeting statement, Summary of Economic Projections (SEP) for March, and Chair Jerome Powell’s press briefing. The Fed made it clear that it is on hold for now and very likely for the rest of the year – the FOMC is data-dependent, after all – which is a relief to markets that were expecting no more hikes in 2019 but wondering if the SEP forecasts would agree.
Importantly, the FOMC released an update to their plans for normalizing the balance sheet. The first phase – stepping down the caps on reinvestments of Treasurys — will start in May and end in September. After that, Agency MBS reinvestments will roll over into Treasurys across a range of maturities. Chair Powell said that at present the ultimate size of the balance sheet was unknown but should be something above $3.5 trillion after the adjustments are made. The FOMC is still trying to determine its maturity structure going forward as it moves to an all-Treasurys composition over time.
As Fed policymakers return to public engagements in the coming week, the focus will be on ensuring that the downgrades about the economic outlook are not alarming, and that the plans for the balance sheet are well understood.
Data in the week related to the housing market was generally encouraging. The NAHB/Wells Fargo Housing Market Index for March on Monday held at a reading of 62, its highest in six months and consistent with shaking off the effects of higher mortgage rates late in 2018. On Friday, the NAR’s sales of existing homes in February also reflected the decline in mortgage rates with a nice 13.3% increase to 5.51 million units (SAAR), the highest since March 2018. The spring buying season may see a little pent-up demand exercised.
Initial claims for jobless benefits fell 9,000 to 221,000 for the week ended March 16 in the report released Thursday. The pace of filings is somewhat more elevated than earlier in the year, but the underlying trend is holding in a comfortable range somewhere between 220,000-230,000.
State unemployment data suggests that areas where the labor force is large are enjoying continued low rates of unemployment. At present there is little evidence that somewhat slower economic growth has resulted in easing labor market conditions.
The Philadelphia Fed’s Manufacturing Business Outlook for March on Thursday offered a solid rebound in the general business conditions index to 13.7 from -4.1 in February. Conditions may be more uneven month-to-month and activity less heated than in 2018. However, expansion remains present.
The data on factory orders in January on Tuesday was relatively old. The meager up 0.1% for January from December and unrevised up 0.1% for December from November confirms that overall orders remained constrained by low petroleum prices, while durables performed better, especially on transportation orders.
The Conference Board’s Leading Economic Index for February was up 0.2% when reported on Thursday. It hinted at a modest pick up in economic activity after a more sluggish few months.
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