NAM: Monday Economic Report
The housing market provided mixed news last week, but lower interest rates should give a boost moving forward. On that note, the average 30-year mortgage rate registered 4.06 percent last week, according to Freddie Mac, the lowest level since January 2018. As a reference, rates were 4.94 percent as recently as November.
Indeed, new home sales rebounded in February, up 4.9 percent to the best reading in 11 months, with reduced mortgage rates likely helping to boost demand.
Yet, new residential construction disappointed once again, falling 8.7 percent from an annualized 1,273,000 units in January to 1,162,000 units in February. The decline came entirely from a sizable drop in single-family activity, which decreased from 970,000 units to 805,000 units for the month, the slowest pace since May 2017. On the positive side, while housing permits fell to 1,296,000 units at the annual rate in February, they continue to hover around 1.3 million units and provide some degree of encouragement for a rebound.
The U.S. economy grew 2.2 percent at the annual rate in the fourth quarter in revised data, slipping from the earlier estimate of 2.6 percent. For the year, real GDP rose 2.9 percent in 2018, or 3.1 percent from Q4:2017 to Q4:2018. As such, economic growth last year registered the best reading since 2005, as expected, on a year-over-year basis.
Moving forward, I predict 2.4 percent growth for 2019, recognizing that the global economy is softening and there are lingering political uncertainties out there.
As seen in other regional manufacturing data, the Dallas and RichmondFederal Reserve Banks reported continued expansion of activity in March, building off of weaker data at the end of 2018. Respondents remained upbeat about sales, output, shipments, employment and capital spending for the next six months, and firms have seen some moderation in pricing pressures.
Indeed, the personal consumption expenditures deflator edged down 0.1 percent in January, the first decline since March 2017 and pulled lower by reduced energy costs. Over the past 12 months, this measure has risen just 1.4 percent, the slowest year-over-year pace since September 2016. Core inflation decreased to 1.8 percent year-over-year in January, and the recent deceleration in price growth has likely provided some comfort to the Federal Reserve.
Personal income rose 0.2 percent in February, with 4.2 percent growth since February 2018. Meanwhile, personal spending inched up 0.1 percent in January after falling in December. (Due to the partial government shutdown, the February personal spending data have been delayed.) Personal consumption expenditures have continued to increase at a steady pace, up 3.7 percent year-over-year, but the saving rate remains elevated.