What I Saw Last Week

U.S. Retail Sales increased 0.9% in March after declining an upwardly revised 0.5% (from -0.6%) in February – I had called for a drop of 0.5%. Excluding motor vehicle sales, retail sales increased 0.4% in March after an upward revision left sales flat (from -0.1%) in February. I had expected to see a contraction of 0.1%.

Retail Sales

This report took me by surprise! A significant portion of the increase in March sales was the result of a rebound in motor vehicle demand. Sales at motor vehicle and parts dealers increased 2.7% in March after declining 2.1% in February.

Sales were pretty strong across the board, but not strong enough to warrant that the entire weakness in February was the result of inclement weather conditions. Overall income levels increased pretty significantly in the first quarter, and the March retail sales report showed that consumers still preferred savings over consumption in the aggregate for the quarter.

Builder confidence in the market for newly built, single-family homes in April rose four points to a level of 56 on NAHB Housing Market Index. I had anticipated a rise to 55.



It appears as if, as the spring buying season gets underway, home builders are more confident that current low interest rates and continued job growth will draw consumers to the market.

All three HMI components registered gains in April. The component charting sales expectations in the next six months jumped five points to 64, the index measuring buyer traffic increased four points to 41, and the component gauging current sales conditions rose three points to 61.

Looking at the three-month moving averages for regional HMI scores, the South rose one point to 56 and the Northwest held steady at 42. The Midwest fell by two points to 54 and the West dropped three points to 58. 

U.S. Initial Unemployment Claims increased to 294,000 for the week ending April 11 from an upwardly revised 282,000 (from 281,000) for the week ending April 4. I had expected to see a figure of 280,000.

Initial Claims

Despite the increase in claims, the four-week moving average was virtually unchanged at 283,000. That level was last reached in 2000. Additionally, we saw the lowest continuing claims level since December of 2000.

U.S. Housing Starts increased 2.0% in March to 926,000 from an upwardly revised 908,000 (from 897,000) in February. I had expected to see an increase to 1.045M.



In February, housing starts dropped 15.3% from 1.072M in January and fell below 1.00M for the first time since August of 2014. At the time, the collapse in starts was blamed on extreme inclement weather conditions that impacted the Northeast and the Midwest.

Now, if we accept the weather theory, starts should have rebounded in those two areas of the country, and stability in the South and West should have brought total starts back to January levels. Now, the Northeast did return to January levels, as expected. However, the rebound in the Midwest was poor and remained well below previous trends. Furthermore, starts in the unaffected West (-19.3%) and South (-3.5%) fell to levels not seen since the first half of 2014.

Altogether, the trends in the housing market point to lackluster production for economic reasons as opposed to a one-time exogenous shock.

Single-family starts increased 4.4% in March to 618,000 from 592,000 in February. Excluding February, that was the worst month of new single-family construction since only 593,000 were started in June 2014. Multifamily starts declined 2.5% to 308,000 in March from 316,000 in February.

In summation, the lackluster rebound in March housing starts shows that the decline in February was not completely due to weather-related effects.

As I had expected, U.S. Building Permits contraction from an upwardly revised 1.102M to 1.039 – just above my forecast for a drop to 1.081M.


Single family permits dropped from an annual rate of 1.102M to 1.039M while multifamily permits rose from 623,000 to 636,000 SAAR.

February permit activity in our local area showed that, year-to-date, single family permits were 11% lower in King county but 16% higher in Snohomish County.

Local Permits2

Local Permits

It’s a little hard to make any real forecasts based on early spring figures; however, given the lack of developable land – specifically in King County – I would be surprised to see permits end this year higher than we saw in 2014.

Washington State Employment data for the State and Seattle MSA came out and showed that the State added a total of 10,500 jobs in March and, with that, the unemployment rate contracted from 6.3% to 5.9%.

The Seattle metro area was responsible for 7,200 of the total WA jobs created and our market saw it’s unemployment rate contract from 4.7% to 4.5%.

WA Employment1

Seattle Employment

On a month-over-month basis, growth rates were most pronounced in the construction sector and in Administrative & Support services. Year-over-year, Contraction employment had the healthiest gains with an increase of 16.7%. However, we are still over 12,000 jobs shy of our pre-recession construction employment peak of 101,000 jobs.

Inflation, as measured by the Consumer Price Index, increased 0.2% for a second consecutive month in March. I had expected a slightly higher increase of 0.3%. The core rate also rose by 0.2% whereas I had forecast a contraction to 0.1%.


Energy prices rose 1.1% in March after increasing 1.0% in February. Gasoline prices, one of the main drivers of the increase in energy costs, rose 3.9% in March after increasing 2.4% in February. Most of the gain in core prices was the result of a 0.3% increase in shelter prices. Medical care services, which posted its first decline (-0.4%) since November 1975 in February, increased 0.4% in March.

A lack of price pressures in the producer pipeline and weak income growth should keep core prices from accelerating above their current trend.

CPI growth trends are well below the Fed’s target level, and there are very few underlying pressures that would cause these trends to suddenly change.

Consumer Sentiment increased to 95.9 in the preliminary April reading from 93.0 in March. – I had called for an increase to 94.


Consumer sentiment recovered all of last month’s loses despite relatively higher gasoline costs and a significant weakening in the latest payrolls data.

The Current Conditions Index increased to 108.2 in April from 105.0 in March. The Expectations Index increased to 88.0 from 85.3.

What to Watch for This Week

U.S. Existing Home Sales should have jumped back in March after unimpressive January and February numbers. Look for a rise from 4.88M SAAR to 5.1M.

U.S. Initial Unemployment Claims are likely to drop back down to 288,000.

U.S. New Home Sales rose to 539,000 SAAR in February but I am not seeing that this is sustainable given supply constraints. Look for a drop back to 517,000.