New Durable Goods Orders Rebounded, Up 3.1 Percent in February and 6.9 Percent Year-Over-Year

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The Census Bureau said that new durable goods orders rebounded, up 3.1 percent in February after falling by 3.5 percent in January. Much of that volatility stemmed from shifts in aircraft and parts sales, which can have large swings from month to month. The increase in February was also buoyed by stronger motor vehicles and parts orders (up 1.6 percent), and with solid gains in aircraft and automobiles, transportation equipment orders jumped 7.1 percent in February. Excluding transportation equipment, new durable goods orders increased 1.2 percent in February.

New durable goods orders have trended strongly higher over the course of the past 12 months, soaring 6.9 percent since February 2017. One of the more important measures in this release is new orders for core capital goods (or nondefense capital goods excluding aircraft), which can often be seen as a proxy for capital spending in the U.S. economy. In February, new orders for core capital goods were up 1.8 percent, but like the headline number above, the year-over-year pace was a very healthy 8.0 percent. Read More

Kansas City Fed: Manufacturing Outlook Remained Very Optimistic in March, but with Accelerating Costs

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The Kansas City Federal Reserve Bank reported that manufacturing activity continued to expand strongly in March, with the composite index of general business conditions unchanged at 17. Employment remained one of the bright spots in the latest survey (up from 23 to 26), with the index rising to a new all-time high in the survey’s 17-year history. This reflects an ever-tightening labor market, with the average workweek also widening to the best reading in seven years (up from 11 to 15). At the same time, production (down from 21 to 20) and shipments (down from 24 to 12) slowed a little in March, with new orders contracting for the first time since August 2016 (down from 16 to -1). Exports were also softer than desired (down from 2 to 1). Read More

The Federal Reserve Hiked Short-Term Rates as Expected—the First of the Powell Era

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As expected, the Federal Open Market Committee (FOMC) ended its March 20–21 meeting by hiking short-term rates by 25 basis points. This was the first FOMC meeting chaired by Jay Powell, and the Federal Reserve is likely to increase the federal funds rate at least two (and maybe three) more times in 2018. The economic projections of the participants were consistent with two more rate hikes this year, with the midpoint of the federal funds rate rising from 1.625 percent now to 2.1 percent by year’s end. It is worth noting that the Federal Reserve’s current outlook is more aggressive than it was in December for the next two years. Respondents now see the federal funds rate increasing to 2.9 percent and 3.4 percent by year’s end in 2019 and 2020, respectively, up from 2.7 percent and 3.1 percent three months ago. As always, the actual pace of rate hikes will hinge on incoming data.

The acceleration of rate hikes likely stems from expectations of faster growth, especially after passage of tax reform and continued signs of strength in the global economy. In December, the Federal Reserve forecasted 2.5, 2.1 and 2.0 percent growth for 2018, 2019 and 2020, respectively. That outlook has risen for real GDP growth of 2.7, 2.4 and 2.0 percent in the latest survey. The FOMC also anticipates that the unemployment rate will fall to 3.8 percent in 2018 and 3.6 percent in 2019. The December projections called for 3.9 percent in both years. Read More

Housing Starts and Permits Pulled Back in February but Were Still Encouraging Overall

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The Census Bureau and the Department of Housing and Urban Development reported that housing starts pulled back in February after notching the fastest pace since August 2007 in January. New residential construction declined 7.0 percent from an annualized 1,329,000 units in January to 1,236,000 units in February. Despite the deceleration in activity, there were some positives to note in the latest report. First, for the fifth straight month, housing starts exceeded 1.2 million units at the annual rate, which suggests that we might finally have breached and sustained that threshold of activity, which is promising. Second, single-family housing starts rose from 877,000 units in January to 902,000 units in February. It was only the second time since September 2007 that single-family construction activity has risen above 900,000 units, following the rate of 946,000 units in November. Read More

NAHB: Builder Optimism Remains Solid in March, with a Strong Outlook for Sales Over the Next Six Months

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The National Association of Home Builders (NAHB) and Wells Fargo reported that the Housing Market Index (HMI) eased marginally, down from 71 in February to 70 in March. Yet, the headline measure remained not far from December’s reading (74), which was the best since July 1999. More importantly, homebuilders are very optimistic about the next six months, despite the index for expected sales of single-family homes declining from 80—the best reading since June 2005—to 78. NAHB Chairman Randy Noel noted, “Builders’ optimism continues to be fueled by growing consumer demand for housing and confidence in the market.” NAHB Chief Economist Robert Dietz added, “A strong labor market, rising incomes and a growing economy are boosting demand for homeownership even as interest rates rise.” Read More

Philly Fed: Manufacturers Continue to Report Healthy Expansion in March

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The Federal Reserve Bank of Philadelphia said that manufacturing activity continued to be healthy in its district in March. The composite index of general business activity eased somewhat from 25.8 in February to 22.3 in March, but new orders (up from 24.5 to 35.7) and shipments (up from 15.5 to 32.4) accelerated strongly at their fastest paces in 12 months. More importantly, just over 52 percent of respondents said that new orders had increased in March, with just 16.4 percent noting declines. In addition, the labor market remained tight, with employment (up from 25.2 to 25.6) strengthening slightly and nearly 35 percent of those completing the survey suggesting that hiring had picked up in March. The average workweek (down from 13.7 to 12.8) slowed a bit in this report but was strong overall. Read More