A look back at the April 22 week shows a sparse data calendar that did not lack interest, even in the absence of comments from Fed officials.
The advance estimate of first quarter GDP surprised to the upside with a solid 3.2% gain, well above expectations. It will effectively quash talk of the necessity of a cut in short-term rates to provide stimulus on the part of the FOMC while bolstering the possibility that another rate cut could be on the horizon in late 2018 or early 2019. Of course, this is the advance estimate and there are two more to go. However, even if the number were to be revised lower, it would still represent continuing modest-to-moderate expansion. The 180-month expansion record is set to be broken in June.
Indications are that the housing sector is starting to revive with a dose of lower mortgage interest rates and slower price increases. If existing home sales declined in March to 5.21 million units (SAAR), it was after a hefty increase to 5.48 million units in February from 4.93 million units in January. It looks like the underlying trend may well be returning to one present before mortgage interest rates hit a near-term peak in November 2018. Supplies of existing homes remain quite narrow and may be driving some buyers into new construction. Sales of new single-family homes were up to 692,000 in March after 662,000 in February and was the highest since 712,000 in November 2017. Supplies of new homes is also relatively low, but consumers can lock in a price and a mortgage rate for a unit yet-to-be built. Home prices are still moving up, if at a less vigorous pace. Potential homebuyers are trying to get the best balance of price and loan costs to maximize affordability. The FHFA House Price Index put the increase at up 4.9% year-over-year in February, the slowest since up 4.8% in January 2015.
Although the average of Freddie Mac’s 30-year fixed mortgage rate for April to-date is 4.14% and the lowest in 15 months, on a week-to-week basis the rate has risen for three weeks in a row. Potential homebuyers make take heed and get into the housing market while they can lock in a low rate and while price increases for houses are relatively mild.
The Richmond Fed Survey of Manufacturing for April pointed to continued expansion but at a slower pace. The composite index fell to 3 in April from 10 in March for a second month in which activity decline. The Kansas City Fed’s manufacturing index told a similar story, declining to 5 after 10 in the prior month. Taken with the reports from New York and Philadelphia last week, the factory sector looks to have held on to growth, albeit at only a moderate pace after the reset in activity at the end of 2018.
The service sector expanded at a middling, but stable pace in April according to the Philadelphia Fed’s Non-Manufacturing Index. It barely budged from a modest 10.9 in April after 10.8 in March. On the other hand, the Richmond Fed’s service sector index for revenues jumped to 26 after 5 in March and was the highest since 31 in August 2018. The Richmond number has the best correlation with the ISM Non-Manufacturing Index among the regional surveys and hints at a stronger national number for April.
New orders for durable goods in March surprised with an up 2.6% reading. Much of the gain was powered by the transportation component which had a sharp increase for aircraft orders that was helped by a solid gain for motor vehicles.
The University of Michigan Consumer Sentiment Index was revised up to 97.2 in the final report, below the 98.4 in March, but in line with normal month-to-month variation. Consumers’ perceptions of current conditions were milder in April, if still elevated in the historical context. Six-month expectations were down a bit from the prior month as well, but also into much changed compared to the trend of the past year. A strong labor market and cautious optimism about the future is keeping confidence up.
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