Can Consumer Spending Reduce the Stall Rate?

Good news for homebuilders amid disappointing construction cost data

5 minutes ago

Construction spending data was worse than economists expected, but the figures may have some good news for the housing market.

Construction spending was $2.09 trillion in February, down 0.3% from February. That's below the 0.7% increase economists had surveyed Wall Street Journal And Dow Jones Newswires planned.

According to Census Bureau data, public construction spending fell 1.2% from January, while private construction spending in February was almost unchanged from the previous month.

However, investment in private residential construction accelerated. If this pace continues through the year, private homebuilding spending will be the largest contributor to US gross domestic product (GDP) in the past three years, according to estimates by economists at Oxford Economics.

Market watchers are eagerly awaiting signs of rising home building costs.

With limited inventory and few sellers, home prices remain high, helping to drive inflation and keep homeownership out of reach for many in the market.

— Terry Lane

Production orders rise, but so do prices

1 hour 24 minutes ago

A pair of manufacturing management surveys showed new orders coming in and production expanding, but prices also moving higher, which could complicate the inflation outlook.

For the first time since September 2022, the Institute of Supply Management's manufacturing index points to an expanding sector. The index rose 2.5 percentage points from the previous month to 50.3% in March. Dow Jones Newswires and Economists Poll Wall Street Journal On average this index is predicted to be below 50%, indicating economic contraction.

„The increase in orders confirms demand for manufactured goods and inventories are more aligned with sales,” wrote Jay Hawkins, senior economist at BMO Capital Markets.

The ISM manufacturing survey returned to expansion territory in March after both new orders and production dipped in February.

„Demand is in the early stages of recovery, with clear signs that conditions are improving,” said Timothy Fiore, head of the ISM Manufacturing Research Group.

Although the S&P Global US Manufacturing Purchasing Managers Index (PMI) index fell to 51.9 in March, the survey also showed continued improvements in business conditions.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said after May 2022, increased demand led to a faster increase in factory output.

Companies hire more workers, but they charge more, Williamson said.

„Most notable was a particularly steep rise in prices charged for consumer goods, which rose at a pace not seen in 16 months, underscoring the flat path to bringing inflation back to the central bank's 2% target,” Williamson said.

The ISM survey showed a similar rise in its price index, rising more than three percentage points to 55.8%, accelerating for a third straight month of inflation.

„One flaw in the report was that input prices continued to rise,” Hawkins wrote.

On Wednesday, both companies will release identical survey data on the services sector.

— Terry Lane

Epidemic growth has slowed in East Asia and the Pacific, but the region still leads the world

2 hours 22 minutes ago

According to a recent World Bank report, growth in East Asia and the Pacific is growing faster than the rest of the world, but slower than before the pandemic.

Excluding China, growth in the region is forecast to rise from 4.4% to 4.6% in 2023, but will slow to an average of 4.9% in 2015-19, the World Bank said in its new report. Solid foundations of growth.

China's growth is forecast to slow to 4.5% this year from 5.2% in 2023 due to high debt and a weak real estate sector, as well as long-term challenges such as the country's aging population and geopolitics. Trade frictions, the World Bank said.

Many countries in the region rely on external demand to grow exports—especially to China.

„China's importance as the ultimate destination for domestic value-added in the region has increased significantly since the early 2000s,” the report said.

Read more about the report here.

-Fatima Atharwala

Consumers are still spending – potentially preventing rate cuts

3 hours 28 minutes ago

Friday's report on personal consumption expenditures from the Bureau of Economic Analysis highlighted a major obstacle in the Federal Reserve's efforts to rein in inflation: Consumers keep spending no matter what.

Consumer spending rose 0.8% in February, a slowdown from a 1% increase in the previous month, but the second largest percentage increase in a single month since January 2023.

The Federal Reserve's anti-inflationary interest rate hikes haven't stopped people from spending — even though borrowing for credit cards, mortgages and other forms of consumer credit has become more expensive, straining household budgets.

High interest rates can slow the economy and curb inflation at the risk of sending it into recession. Instead, due to continued consumer spending, the economy remains resilient. The problem is that rising spending will also help keep inflation hot.

After all, why should companies stop raising prices when customers continue to buy?

Economists have outlined the possibility of slightly higher inflation against the central bank's wishes, prompting the central bank to keep interest rates at a 23-year high for a longer period of time instead of cutting interest rates as currently planned. A boost in consumer spending in February is part of the equation that could do that.

„The days are getting longer and the Fed is waiting to cut interest rates,” Tim Quinlan and Shannon Seery Green, economists at Wells Fargo Securities, wrote in a commentary. „This is because consumer spending has not been dampened by higher borrowing costs, as evidenced by a 0.8% increase in nominal spending in February.”

Correction: This blog post has been corrected to indicate the Federal Reserve's possible next steps in rate cuts.