Not Making A Cut…Yet: March 18 – 22

The Federal Reserve left its short-term interest rate target unchanged for now. Here are the five things we learned from U.S. economic data released during the week ending March 22.

The Fed kept rates steady for now and expects three rate cuts by the holidays. The statement released following the prior week’s Federal Open Market Committee (FOMC) meeting was nearly identical to the one released in late January. The statement continued to note an economy that was “expanding at a solid pace,” a “strong” job market, and “elevated” if “eased” inflation. As a result, the committee voted unanimously to maintain the 5.25-5.50 percent fed funds target rate and to continue to shed the Fed’s holdings of Treasuries and mortgage-backed securities. Further, the Fed remains “strongly committed to returning inflation to its 2 percent objective.”

Economic forecasts from Federal Reserve Board members and Federal Reserve Bank presidents have the U.S. economy expanding 2.1 percent in 2024 (up from the previous 1.4 percent growth forecast), the unemployment rising (slightly) to 4.0 percent, and inflation remaining slightly…um…inflated at 2.4 percent. The group also anticipates three quarter-point cuts to the fed funds rate cuts in 2024 and three more in 2025.

Sales of previously owned homes grew for a second straight month in February. The National Association of Realtors estimates existing home sales rose 9.5 percent to a seasonally adjusted annualized rate (SAAR) of 4.380 million units. Sales remained 3.3 percent below year-ago levels. Sales improved in the West, South, and Midwest during the month. A paltry 2.9-month supply of homes was available for sale, down from a 3.0-month supply in January but up from February 2023’s 2.6 month supply. The median sales price of $384,500 was up 5.7 percent from a year earlier.

Housing starts rebounded in February. Housing starts surged 10.7 percent to a seasonally adjusted annualized rate (SAAR) of 1.521 million units. This followed a 12.3 percent drop in January, leaving the Census Bureau measure up 5.9 percent from a year earlier. Single-family home starts rose 11.6 percent, while those of multifamily homes increased 8.6 percent. Looking towards the future, the annualized count of issued building permits jumped 1.9 percent to 1.489 million. Permits were up 2.4 percent from a year earlier. Completions surged 19.7 percent to an annualized 1.729 million. Completions were 9.6 percent ahead of their year-ago pace.

Homebuilders report improvement in the market in March. The National Association of Home Builders’ Housing Market Index (HMI) added three points to a seasonally adjusted 51. The HMI has increased for four consecutive months. The HMI improved in three of four Census regions, with the West suffering a decline. The current single-family home sales index grew by four points to 56 (its best reading since last August), while the expected sales index increased by two points to 62 (its highest reading since last June). The prospective buyers index added two points to 34. The NAHB expects “more consumers to jump off the sidelines” should mortgage rates fall further.

Forward-looking economic measures turned positive in February. The Conference Board’s Leading Economic Index (LEI) edged up 0.1 percent to 102.8 (2016=100), its first gain in more than two years. Even with the increase, the LEI was 2.6 percent below its reading six months ago. Seven of ten LEI components made positive contributions, led by weekly manufacturing hours and stock prices. The Coincident Economic Index (CEI) grew 0.2 percent to 112.3, leaving the measure up 1.1 percent over the past six months. All four CEI components made positive contributions. The Lagging Economic Index (LAG) added 0.3 percent to 118.8 (+0.8 percent over the past six months). The Conference Board anticipates a slowdown in economic growth in the coming months.

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

• Jobless Claims (Week ending March 16, 2024, First-Time Claims, seasonally adjusted): 210,000, -2,000 vs. the previous week, -18,000 vs. the same week a year earlier). 4-week moving average: 211,250 (-4.4% vs. the same week a year earlier).
• State Employment (February 2024, Nonfarm Payrolls, seasonally adjusted): Increased in 4 states and unchanged in 46 states and the District of Columbia vs. January 2024. Increased in 25 states and unchanged in 25 states and the District of Columbia vs. February 2023.
• Treasury International Capital Flows (January 2024, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$79.8 billion (December 2023: +140.5 billion; January 2023: +$30.7 billion).

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