Applying the Brakes: March 22 – 26

Economic activity paused in the face of February’s harsh weather. Here are the five things we learned from U.S. economic data released during the week ending March 26.

Personal spending gave back some of its recent surge in February. Real personal consumption expenditures (PCE) dropped a seasonally adjusted 1.0 percent during the month following an upwardly revised 3.4 percent jump in January. The Bureau of Economic Analysis also indicates that real (inflation-adjusted) spending remained 2.1 percent below its year-ago pace. Spending declined across all major categories: durable goods (-4.6 percent), nondurable goods (-2.5 percent), and services (-0.1 percent). Weighing down on spending was that the previous month featured stimulus checks and February’s winter weather. Real disposable income fell 8.2 percent in February, with those checks pumping up income 11.1 percent during the prior month. The savings rate fell sharply to a still-inflated +13.6 percent.

Economic activity slowed in February. The Chicago Fed National Activity Index (CFNAI) plummeted by 184-basis points during the month to a reading of -1.09. The weighted index of 85 economic measures has not been this low since last April, the result of weather caused production shutdowns during the month. Thirty-four components made a positive contribution to the CFNAI, while the other 51 measures pulled down the index. Much of the CFNAI’s fall resulted from a sharp decline in production-related indicators, with personal consumption/housing indicators also turning south in February. Measures linked to both sales/orders/inventories and employment were more stable.

Existing home sales fall as inventories remained historically tight. Sales of previously owned homes dropped 6.6 percent in February to a seasonally adjusted annualized rate of 6.220 million units. The National Association of Realtors’ measure remained 9.1 percent ahead of its year-ago pace. Sales gained 4.6 percent during the month in the West but fell in the Midwest (-14.4 percent), Northeast (-11.5 percent), and South (-6.1 percent). There were a mere 1.030 million homes available for sale at the end of the month, the equivalent to only a 2.0 month supply. Inventories were down a startling 29.5 percent from a year earlier. The resulting median sales price of $313,000 was up 15.8 percent from a year earlier.  

Durable goods stumbled in February. The Census Bureau reports new orders for manufactured goods dropped 1.1 percent during the month to a seasonally adjusted $254.0 billion. This was the first decline in ten months, partially due to supply chain issues (including for semiconductors). The only major categories of durables to not report declining new orders were civilian aircraft and electrical equipment/appliances. Orders fell for motor vehicles (-8.7 percent), fabricated metal products (-0.9 percent), machinery (-0.6 percent), computers/electronics (-0.5 percent), and primary metals (-0.5 percent).

Consumer sentiment rose to a pandemic high in late March. The University of Michigan’s Index of Consumer Sentiment rose by 8.1 points during the month to a seasonally adjusted 84.9. After adding 1.9 points from the preliminary March reading, the index now sits at its highest reading in a year. The current conditions index increased by 6.8 points to 93.0, while the expectations index swelled 9.7 points to 79.7. Rising due to the delivery of the third round of economic stimulus checks and progress on vaccinations. The press release notes that “[t]he data clearly point toward robust increases in consumer spending.”

Other U.S. economic data released over the past week:

• Jobless Claims (Week ending March 20, First-Time Claims, seasonally adjusted): 684,000, -97,000 vs. the previous week, -2,623,000 vs. the same week a year earlier). 4-week moving average: 736,000 -26.7% vs. the same week a year earlier).
• Gross Domestic Product (2020Q4—Third Estimate, Real GDP, seasonally adjusted annualized rate): +4.3% vs. 2020Q3.
• New Home Sales (February 2021, Sales of Single-Family Homes, seasonally adjusted annualized rate): 775,000 (-18.2% vs. January 2021, +8.2% vs. February 2020).
• State Employment (February 2021, Nonfarm Payrolls, seasonally adjusted): Vs. January 2021: Increased in 11 states, decreased in 3 states, and essentially unchanged 36 states and the District of Columbia. Vs. February 2020: Decreased in 48 states and the District of Columbia and essentially unchanged in 2 states.

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