|
Global markets were volatile this past month against the backdrop of a potential nuclear meltdown in earthquake-ravaged Japan, Allied military intervention in Libya, and new and violent anti-government protests in Bahrain and Syria. In the U.S., the Federal Reserve’s Beige Book noted improvement across all districts, and the Fed once again held rates steady at their meeting on March 15th, stating that “the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually.”
Residential The housing market continues to struggle despite a general improvement in economic conditions, and the enormous glut of homes on the market and increasing foreclosures will likely hamper home sales for months to come. Existing home sales in February dropped by 9.6% and current inventory represents 8.6 months’ worth at the existing pace of sales. Of note, distressed properties accounted for 39% of sales and 33% of all sales were cash transactions. New home sales plunged 16.9% last month; sales declined in all four regions, and the median sales price of a new home fell 8.9% on a year-over-year basis. Building permit applications, an indicator of future construction activity, fell 8.5% to a 517,000 annualized pace. Housing starts plunged by 22.5% (the largest monthly decline since 1984) in February to a seasonally adjusted annualized rate of 479,000. Spending Economic growth and consumer confidence levels have improved since last year, but sustained higher oil prices could threaten those trends in coming quarters. In the third and final reading of Q4 GDP, the government reported that the economy expanded at a 3.1% annualized pace, just shy of the initial estimate of 3.2%, but above the second estimate of 2.8%. This marks a 0.5% improvement over the third quarter’s 2.6% pace. Consumer activity led the way as personal consumption climbed 4.0% during the quarter, while slower inventory growth subtracted 3.4 points from the number and private investment contracted 18.7%. For all of 2010, the economy expanded 2.9%, the fastest rate of growth in 5 years. In more current data, personal spending rose by 0.7% in February, marking the largest increase since last October and the eighth consecutive monthly gain, and retail sales posted the largest gain (1.0%) in four months in February on higher auto and gasoline sales. Consumer credit expanded in January by $5.0 billion due to a surge in non-revolving credit levels, but revolving debt failed to rise in the same period, a disappointment after it increased for the first time in 27 months in December. The Conference Board’s index of consumer confidence hit a 3-year high of 70.4 in February largely due to increased optimism regarding the labor market. However, consumer sentiment measured by the University of Michigan fell to its lowest level in five months in March as rising oil prices dampened outlooks. Most national and regional manufacturing indices continued their expansion last month. The ISM manufacturing index increased in February to 61.4, the highest reading since May 2004, and the data marked the 19th straight month of expansion. The Chicago Purchasing Managers Index unexpectedly increased in February to 71.2, the highest level seen since July 1988, and the Philadelphia Fed’s survey of manufacturing expanded for the 6th straight month in March and at the fastest pace since early 1984. Industrial production fell 0.1% in February, but factory output, which makes up about 75% of total industrial production, grew 0.4% after a 0.9% increase in January. National factory orders jumped 3.1% in January, the most in more than four years, and orders for durable goods unexpectedly fell in February, declining 0.9%, following a 3.6% increase in January. Finally, in February, the ISM’s non-manufacturing index marked its 14th consecutive month of expansion and the fastest rate of growth since August 2005. The Non-Manufacturing Index is said to capture about 90% of U.S. economic activity. Labor There is a sense of cautious optimism in the labor markets as the private sector begins to create new payrolls and initial jobless claimsare dropping, however, unemployment levels are not expected to fall dramatically in the short-term. February non-farm payrolls grew by 192,000 and the vast majority of the increase was attributed to gains in the private sector (up by 222,000). The unemployment rate fell unexpectedly to 8.9% from 9.0%, the lowest level in nearly two years, but the underemployment rate, which includes people who have given up looking for work and those working part-time for economic reasons, remained stubbornly high at 15.9%. First time claims for state jobless benefits fell in the week ended March 19th to 382,000 from 487,000 in the previous week, and the four-week average of initial claims, which reduces volatility inherent in the weekly number, dropped to 385,250 from 386,750. Inflation Oil prices remain elevated amidst ongoing political unrest in multiple locations in Northern Africa and the Middle East, however underlying domestic inflation pressures have not yet reflected the gains. The core personal consumption expenditures gauge, reportedly the Fed’s preferred inflation measure, grew 0.1% in February and the index is up a mere 0.8% over the past 12 months. The overall producer price index surged by 1.6% last month (the largest jump in the headline number since June of 2009), but for the year, Core PPI has gained only 1.8%. Last month, the headline consumer price index (CPI) also jumped by 0.5%, pushed higher by energy costs, especially gasoline, which increased 4.7% from last month. Compared to a year earlier, core CPI has increased a slight 1.1%.
The next regular FOMC meeting will be held on April 26th and 27th. Market participants do not currently anticipate changes to the overnight lending rate until 2012, and the Federal Reserve has not announced any changes to the pace or duration of its current round of quantitative easing.
 |
Subscribe to this comment's feed
