A look back at the April 15 week includes hearing from a number of Fed policymakers and issuance of the Fed’s Beige Book of anecdotal evidence about recent economic conditions across the 12 Districts.
Comments from policymakers indicate that the consensus is for rates to remain on hold, but a few are not dismissing that the FOMC could increase short-term rates one time later in 2019. Current policy was deemed appropriate for now However, some think that growth will firm from the present lackluster pace and that removing another increment of accommodation could be necessary later on. Whether this proves to be the case or not, it is a warning to markets not to get too exercised about the prospect of a rate cut. Policymakers will always reiterate that policy is not on a preset course and that decisions will be made based on the economic data. And right now, the economic data is not leaning toward recession.
In particular, the Fed’s Beige Book is a useful flag for when the US economy is tipping into a downturn. The latest edition was be no means a glowing assessment of economic conditions. However, its slight-to-moderate array of characterizations of growth across the 12 Districts was an upgrade from the prior two reports that reflected the abrupt slowdown in some sectors of the economy in the final months of 2018 and early 2019 – notably housing, manufacturing, and services. Even during that slowdown, labor markets remained tight with shortages in certain categories of skilled workers and demand for all types of labor. Wages and benefits continued to increase in order to attract and retain workers. And price increases are generally modest with a few points of variability related to energy costs and trade and tariff policy. Fed policymakers will take these into account. The broad consensus for keeping rates on hold and waiting upon events and numbers will not change at the upcoming April 30-May meeting.
Among the week’s hard economic data, the numbers on retail and food sales in March offered a brighter picture for consumer spending at the end of the first quarter. The 1.6% increase was above all expectations. Even with the boost from motor vehicles and gasoline, all major categories except one – sporting goods had a small decline – rose in the month.
For the April 13 week, initial jobless claims managed to remain below the 200,000 level for a second week in a row and at near-50-year lows. Even though the numbers are not fully comparable due to changes in unemployment eligibility over time, these are still consistent with extraordinarily tight labor market.
The housing market could start to pick up again in the spring months. The NAHB/Wells Fargo Housing Market Index nudged up 1 point to 63 in April, its highest since 68 in October. It reflected a solid increase in buyer traffic which could mean higher sales. Housing starts and building permits for March were lackluster with a small decline in starts of 0.3% to 1.139 million units (SAAR) and permits off 1.7% to 1.269 million units. While the housing market has cooled from 2017 and 2018, the wobble in activity that followed on the near-term peak in mortgage interest rates in November appears to have stabilized. Now that mortgage rates have fallen off to levels not see in over a year and price increases have faded, consumers should be more motivated to commit to a home purchase. Erratic winter weather may not have helped conditions in February and March, leaving room for a rebound in April.
The earliest surveys for manufacturing activity in April were the New York Fed’s Empire State Manufacturing Survey and the Philadelphia Fed’s Manufacturing Business Outlook. The general business conditions index in each moved in opposite directions. However, the reading in both cases suggested modest expansion. The New York Fed’s Business Leaders Survey for April pointed to stable conditions in the service sector at the start of second quarter that could also be deemed in line with modest expansion.
Industrial production and capacity utilization for March continued in line with recent months with sluggish manufacturing, declines in mining, and erratic utilities output. However, year-over-year the pace of activity is higher.
The Conference Board’s Leading Economic Index for March was bit above expectations at up 0.4% with eight of 10 components up and two unchanged. It supports the idea that the economy will continue to grow in the coming months.
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