Print
There were several housing-related economic data releases last week. The reports showed that the pace of new home construction continued to improve in March, driven by long builder backlogs and a lack of existing homes for sale. This will be another busy week of updates, with reports that will touch on business spending, consumer confidence, first-quarter GDP growth, and personal income and spending in March.
Last Week’s News
On Monday, the National Association of Home Builders Housing Market Index for April was released. This measure of home builder confidence dropped from 79 in March to 77 in April, which was in line with expectations. This is a diffusion index where values above 50 indicate growth, so this result still signals expansion for home builders during the month, just at a slightly slower pace. Home builder confidence has been well-supported during the past two years, as low mortgage rates, high levels of demand, and a lack of existing homes for sale all supported faster construction growth. This marks the lowest point for the index since last September, though, indicating that home builders are facing more challenges this year. Rising material and labor costs have weighed on home builder sentiment so far in 2022, and these headwinds are expected to remain at least for the short term.
Tuesday saw the release of the March building permits and housing starts reports. These measures of new home construction increased more than expected during the month. Housing starts increased 0.3 percent in March against calls for a 1.6 percent decline, while permits rose 0.4 percent against forecasts for a 2.4 percent drop. While these reports can be volatile on a month-to-month basis, both starts and permits remain well above pre-pandemic levels, signaling robust new home construction in March. In fact, the rate of new housing starts now sits at its fastest pace since 2006. The reports also showed that home builder backlogs remain long, driven by high levels of home buyer demand, a low supply of existing homes for sale, tangled global supply chains, and skilled labor shortages. Permits and starts at current levels indicate that the pace of new home construction remained strong throughout the first quarter despite industry headwinds. Looking forward, continued construction above pre-pandemic levels would be a positive development for the housing sector given the supply constraints.
We finished the week with Wednesday’s release of the March existing homes sales report. The report showed that sales of existing homes fell 2.7 percent during the month, following a downwardly revised 8.6 percent drop in February. This was slightly better than the 4.1 percent decline that was expected but still marks two consecutive months with declining sales. The pace of existing home sales surged to a one-year high in January. This was due, in large part, to buyers rushing to lock in low mortgage rates at the start of the year, so the slowdown in February and March is understandable. Existing home sales increased notably following the expiration of initial lockdowns in 2020; however, there are signs that home buyer demand is starting to drop. The low supply of homes for sale, increased prices, and rising mortgage rates all served as headwinds for faster sales growth over the past two months. That said, the pace of existing home sales remains above pre-pandemic levels, and continued sales growth at this level would be a sign of a relatively healthy housing sector.
What to Look Forward To
On Tuesday, the preliminary March durable goods orders report will be released. Orders of durable goods are expected to increase 1 percent following a 2.1 percent decline in February. The anticipated rebound is due to an increase in volatile aircraft orders during the month. Core durable goods orders, which strip out the impact of transportation orders, are expected to increase 0.5 percent following a 0.6 percent decline in February. The drop in core durable goods orders in February was the first monthly drop since February 2021, so the anticipated rebound in March would be an encouraging sign that the slowdown in business spending in February was only temporary. Business spending remained strong throughout most of 2021, and high levels of consumer demand and business confidence are expected to support business spending in the months ahead.
Tuesday will also see the release of the Conference Board Consumer Confidence Index for April. Confidence is expected to increase modestly during the month, with forecasts calling for the index to rise from 107.2 in March to 108 in April. If estimates hold, this would echo a similar increase in the previously released University of Michigan consumer sentiment survey. This would also mark two consecutive months with improving confidence, which would be an encouraging development given that improved confidence has historically supported faster consumer spending growth. High levels of inflation have weighed on consumer sentiment so far this year; however, if we start to see inflationary pressure recede in the months ahead, it could lead to further improvements in confidence and spending growth throughout the rest of the year.
On Thursday, the advanced estimate of 2022 first-quarter GDP growth is set to be released. Economists expect that the economy grew at an annualized rate of 1 percent during the quarter, down from the 6.9 percent annualized growth rate in the fourth quarter. Despite the anticipated slowdown in headline economic growth, personal consumption growth is expected to improve from an annualized 2.5 percent in the fourth quarter to 3.4 percent annualized to start the year. The anticipated slowdown in overall growth in the first quarter is due to slowing government spending as well as high monthly international trade deficits. Both the January and February international trade reports showed record monthly deficits, driven by high levels of import growth that offset rising exports. Looking ahead, economists expect to see moderate growth throughout the year compared to 2021, as tighter monetary and fiscal policies are expected to slow the pace of the economic recovery.
We’ll finish the week with Friday’s release of the March personal income and personal spending reports. Both are expected to show growth during the month, with personal income set to rise 0.4 percent while spending is expected to show a 0.6 percent increase. If estimates prove accurate, this would mark three consecutive months with personal spending growth following a temporary slowdown in spending in December. Personal spending growth has held up relatively well so far year to date, despite the challenges created by high levels of consumer inflation. This is a good sign for overall growth, given the importance of consumer spending for the economy. Personal income has also shown consistent growth, and, if estimates hold, this would be the sixth straight month with rising personal income. American workers have benefited from the strong labor market to start the year as high levels of job openings and low unemployment have helped boost wage growth.
That’s it for this week—thanks for reading!
