The Economy Expands, Optimism Does Not: March 21-25

Business activity grew again in February, but inflation is weighing down consumer sentiment. Here are the five things we learned from U.S. economic data released during the week ending March 25. 


Economic activity held firm in February. The Chicago Fed National Activity Index (CFNAI) decreased by eight basis points during the month to a still expansionary +0.51. Sixty-one of the 85 CFNAI’s components made positive contributions (with the other 24 measures dragging down the index). Three of four broad categories of CFNAI components made positive contributions: employment (up 18 basis points to +0.28), production (off by three basis points to +0.22), and sales/orders/inventories (steady at +0.04). Measures tied to personal consumption and housing made a negative -0.04 contribution (off by 25 basis points from January). The CFNAI’s three-month moving average slipped by two basis points to a reading of +0.35, suggesting that the U.S. economy was growing above its historical average. 

Consumer sentiment deteriorated further in March. The University of Michigan’s Index of Consumer Sentiment lost 3.4 points during the month to a seasonally adjusted 59.4 (1966Q1=100). One year ago, the same measure was at a far more confident reading of 84.9. A (very) small glimmer of hope is that most of March’s decline occurred earlier in the month, as reflected in the preliminary results reported a few weeks ago. The current conditions index declined by a whole point to 67.2 (March 2021: 93.0), while the expectations index fell by 5.1 points to 54.3 (March 2021: 79.7). The press release stated that more consumers are noting “reduced living standards due to rising inflation” than any other time except between 1979 and 1981 and in 2008. 

New home sales slowed in February. The Census Bureau indicates that sales of new single-family homes decreased 2.0 percent to a seasonally adjusted annualized rate (SAAR) of 772,000 homes. New home sales were off 6.2 percent from their year-ago pace. Sales improved in February in both the Northeast and Midwest but slumped in the West and South. There were 407,000 new homes available for sale at the end of the month, up 2.3 percent from January 2022 and 33.0 percent from February 2021. This represented a 6.3 month supply. 

Fewer buyers were signing contracts to purchase homes in February. The National Association of Realtors’ Pending Home Sales Index (PHSI) shed 4.5 points during the month to a seasonally adjusted 104.9 (2001=100). The index, which measures signed real estate contracts for existing homes, has fallen for four consecutive months, leaving it 5.4 percent below its year-ago reading. While the PHSI grew 1.9 percent in the Northeast, it fell in the Midwest (-6.0 percent), West (-5.4 percent), and South (-4.4 percent). The press release blames “the low number of homes for sale” for the depressed contract activity. 

Durable goods orders fell in February. The Census Bureau reports that new orders for manufactured durable goods dropped 2.2 percent during the month to a seasonally adjusted $271.5 billion. Even with the decline, orders over the first two months of 2022 were 14.2 percent ahead of year-ago levels. Transportation goods orders slumped 5.6 percent, pulled down by drops for civilian aircraft (-30.4 percent) and motor vehicles (-0.5 percent). Non-transportation goods orders decreased 0.6 percent. Durable goods shipments held steady in February and eked out a 0.2 percent advance net of transportation goods. Unfilled orders ($1.288 trillion) and inventories ($478.5 billion) each expanded 0.4 percent during the month. 

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

  • Jobless Claims (Week ending March 19, 2022, First-Time Claims, seasonally adjusted): 187,000 (lowest reading since 1969), -28,000 vs. the previous week, -471,000 vs. the same week a year earlier). 4-week moving average: 211,750 (-70.9% vs. the same week a year earlier). 
  • State Employment (February 2022, Nonfarm Payrolls, seasonally adjusted): Payrolls increased in 27 states and held steady in 23 states and the District of Columbia vs. January 2022. Payrolls increased in 48 states and the District of Columbia and held steady in 2 states vs. February 2021. 

The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.

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