Last week was relatively quiet on the economic update front, with only three major data releases. The weekly initial jobless claims and new home sales reports served as highlights. This week will be busier, with reports on first-quarter GDP growth, durable goods orders, and personal income and spending.
Last Week’s News
On Thursday, the initial jobless claims report for the week ending April 17 was released. The number of initial unemployment claims fell from 586,000 to 547,000 during the week, against calls for an increase to 610,000. This report marks the second week in a row with initial unemployment claims hitting a new pandemic-era low. It’s an encouraging sign that the labor market recovery is picking up steam as we continue to see improvement on the public health front. Although claims can be volatile on a week-to-week basis, we’ve made steady progress this year in lowering the average number of weekly unemployment claims. The job market continues to benefit from eased state and local restrictions, which have supported the addition of jobs, especially in the hard-hit leisure and hospitality sectors. Work remains to be done to get back to pre-pandemic levels of initial claims, but the progress we’ve made so far this year is encouraging. Further improvements are expected as we continue to make progress with the mass vaccination efforts.
Thursday also saw the release of the existing home sales report for March. Sales of existing homes fell by 3.7 percent during the month, in a larger decline than the estimated 1.8 percent drop. The result was largely due to low levels of supply of homes for sale and rising prices. On a year-over-year basis, home prices are up by 17.2 percent, and the supply of existing homes for sale is down by more than 28 percent over the same period. Despite the drop in March, the pace of existing home sales is up by 14 percent year-over-year, highlighting the strong rebound we’ve seen since initial lockdowns were lifted last year. Home sales over the past year have been supported by low mortgage rates and shifting home buyer preferences due to the pandemic. Looking forward, however, rising prices and mortgage rates may serve as a headwind for significantly faster levels of existing home sales. With that said, sales near current levels signal high levels of home buyer demand and a strong housing market.
On Friday, the March new home sales report was released. The pace of new home sales increased by more than expected during the month, going up 20.7 percent against calls for a 14.2 percent rise. This result helped offset the 16.2 percent decline in new home sales in February, bringing the pace of sales to its highest level since 2006. The strong result was driven by relatively low mortgage rates and high levels of home buyer demand. New home sales are a smaller and more volatile component of total sales compared with existing home sales, but they have increased notably since initial lockdowns were lifted last year. On a year-over-year basis, the pace of new home sales was up by 66.8 percent in March. Given the low levels of supply of homes available for sale and high levels of demand, home builders have increased the pace of new home construction over the past year. As March’s report demonstrates, newly constructed homes have been quick to sell once available.
What to Look Forward To
Monday saw the release of the preliminary estimate of March’s durable goods orders. The report showed that durable goods orders rose by 0.5 percent during the month, against economist estimates for a 2.3 percent increase. This miss against expectations was primarily due to a slowdown in volatile aircraft orders. Core durable goods orders, which strip out the impact of transportation orders, rose by a solid 1.6 percent in March, in line with economist estimates. Core durable goods orders are often viewed as a proxy for business spending, so this return to growth following a weather-related lull in February spending was a positive sign for business spending during the month and quarter. Business confidence surged in March, largely driven by the improvements on the public health front and the recent stimulus bill. Looking forward, high levels of business confidence should support further spending growth as we head into the spring and summer.
On Tuesday, the Conference Board Consumer Confidence Index for April will be released. This widely followed measure of consumer confidence is expected to increase from 109.7 in March to 112 in April. If estimates prove accurate, this report would mark four straight months with improving confidence. It would also bring the index to a new post-pandemic high. We’ve seen confidence steadily improve this year, due to public health improvements that have allowed for easing of state and local restrictions and an accelerated economic recovery. Improving confidence has historically supported faster consumer spending growth, so an increase in April would be a positive sign for continued consumer spending growth. That said, work must to be done to get the index back to the pre-pandemic high of 131 recorded in February 2020. But if improvements continue over the next few months, the index could approach pre-pandemic levels by this summer.
Wednesday will see the release of the FOMC rate decision from the Fed’s April meeting. The Fed cut the federal funds rate to virtually zero in March 2020, and economists do not expect to see any changes to interest rates at this meeting. To support the ongoing economic recovery, the Fed has continued to signal it will keep rates low for the foreseeable future. Given this, the focus for the April meeting will be largely on the press release and Fed Chairman Jerome Powell’s post-meeting press conference. Economists will be looking for any hints regarding the future path of the Fed’s asset purchasing program. Currently, the central bank is purchasing $120 billion of Treasury and mortgage-backed securities each month. No plans exist for tapering off this level of purchases, but, as any changes could spark volatility, this program should be monitored.
Thursday will see the release of the advance estimate for first-quarter GDP growth. The report is expected to show that the economy grew at an annualized rate of 6.6 percent during the quarter, up from the 4.3 percent annualized growth rate in the fourth quarter of 2020. This result is anticipated in large part due to forecasts for a surge in personal consumption to start the year. Economists expect personal consumption to rise by 10.3 percent on an annualized basis during the first quarter, in a significant boost from the 2.3 percent annualized growth rate recorded in 2020’s final quarter. Personal consumption in 2021 has been supported by multiple rounds of federal stimulus payments and public health improvements that have allowed for an easing of state and local restrictions. Ultimately, if estimates prove accurate, this report would be another signal that the economic recovery has accelerated and further growth can be expected.
Thursday will also see the release of the initial jobless claims report for the week ending April 24. Economists expect to see the number of initial unemployment claims increase modestly from 547,000 to 550,000 during the week. If estimates hold, this report would mark three straight weeks with initial claims coming in under 600,000—an encouraging sign that the labor market recovery continues at a healthy rate. We hit a 2021 high of 904,000 initial claims in early January as the third wave of the pandemic was peaking. Ever since, we have seen steady progress in getting case growth under control, which has accelerated the labor market recovery. Looking forward, if progress continues on the mass vaccination front, further improvements for the labor market can be expected. With that said, the number of initial weekly claims remains high on a historical basis. This weekly report will be closely monitored until substantial progress is made in getting weekly unemployment claims back to pre-pandemic levels.
We’ll finish the week with Friday’s release of the March personal income and personal spending reports. Personal spending is expected to increase by 4.3 percent during the month, following a 1 percent decline in February. This forecast is based on the tailwind from the additional round of stimulus checks distributed in March, as well as easing of state and local restrictions. If estimates prove accurate, the increase in personal spending would echo the 9.8 percent increase in retail sales we saw in March. It would also be a good sign for overall economic growth during the month. Personal income has been very volatile on a month-to-month basis since the start of the pandemic, driven by shifting federal stimulus payments. Economists expect to see income rise by 20.1 percent in March, reflecting the impact of the $1,400 stimulus checks received during the month.
That’s it for this week—thanks for reading and stay safe!