What I Saw Last Week

Inflation – as measured by the Consumer Price Index – matched my forecast for a 0.1% increase in February, with the core rate (which excludes food and energy) also exactly matching my forecast for a rise of 0.2%.


On a year-over-year basis, total CPI is up 2.7% before seasonal adjustment and core CPI is up 2.2%. February was the 15th straight month that the 12-month change for core CPI measured between 2.1% and 2.3%.

Core CPI was boosted by the gain in the recreation index, as well as increases in the index for medical care (+0.1%) and the indexes for rent and owner’s equivalent rent, both of which increased 0.3%.

The key takeaway from the report is that consumer inflation is certainly firming and offering a data-based rationale for the Feds move on rates.

U.S. Retail Sales met my forecast with a rise by 0.1% in February while core sales – which exclude auto sales – rising by 0.2% (marginally above my forecast for an increase of 0.1%).  I would add that February report also contained upward revisions for total January sales (from 0.4% to 0.6%) and core retail sales (from 0.8% to 1.2%).

Retail Sales

Monthly sales declines were registered across several discretionary categories, led by electronics and appliance stores (-2.8%), miscellaneous store retailers (-0.8%), clothing stores (-0.5%), sporting goods, hobby, book and music stores (-0.4%), general merchandise stores (-0.2%), and food services and drinking places (-0.1%).

The pockets of retail sales strength in February were building materials, garden equipment and supplies dealers (+1.8%), non-store retailers (+1.2%), furniture and home furnishing stores (+0.7%), and health and personal care stores (+0.7%).

The takeaway from the February report is that retail sales activity didn’t necessarily corroborate the high readings seen for consumer confidence, exposing some of the disconnect between “soft” survey data and the “hard” data.

As was fully anticipated by the market, the Federal Reserve raised rates from 0.625% to 0.825%.

While the Fed quickened the pace of easing with a quarter-point just three months after the last one, it left its median forecasts for a total of three rate rises in 2017 unchanged.

U.S. Housing Starts rose 3.0% in February to a seasonally adjusted annual rate of 1.288 million.  I had forecast a less robust increase of 1.1%.


The multi-unit segment, which is notoriously volatile, was the point of weakness in February with multifamily starts falling by 3.7% to an annual rate of 416,000.

There was a notable pickup in single-family starts in all regions except for the South (-2.6%).  The Northeast rose 16.7%, the Midwest was up 20%, and the West rose by16.8%.

As I had anticipated, U.S. Building Permits contracted, but the drop was more precipitous that I was expecting.  Total permits contracted by 6.2% to a seasonally adjusted annual rate of 1.213 million – I had forecast a smaller contraction of 2.6%.


Permits for single-family homes were on the mixed side. There were declines in the Northeast (-8.5%) and the South (-1.8%) that were offset by gains in the West (+14.7%) and the Midwest (+10.5%).

The number of units under construction at the end of the period was 1.091M units. The first quarter average of 1.084M is 2.9% above the fourth quarter average. That will compute as a positive input for first quarter GDP forecasts.

The key takeaway from the report is that there was strength in the single-family sector for both starts and permits. Single-family starts increased 6.5% to 872,000 while single-family permits increased 3.1% to 832,000.

Consumer Sentiment in early March came in at 97.6 – better than my call for an increase to 96.8.


The Current Economic Conditions Index jumped from 111.5 to 114.5, which is the highest reading since 2000, while the Index of Consumer Expectation rose from 86.5 to 86.7.

It was noted in the report that the Expectations Index among Democrats is at 55.3 while the Expectations Index among Republicans is at a whopping 122.4!  Independents pretty much split the middle at 88.3. Per the report, those disparate views suggest spending gains are likely to be uneven over time and across products.

The takeaway from the report is that consumers are feeling better about their current personal finances; however, there appears to be a sharp divide about the outlook that cuts sharply across political partisan lines.

What to Watch for This Week

The FHFA Housing Price Index rose by 0.4% in December and the January figure should show prices up by a further 0.5%.

U.S. Existing Home Sales were measured at an annual rate of 5.69M in January and the February figure should show a bit of a slowdown in substantial inventory constraints.  Look for a figure of around 5.54M units.

U.S. New Home Sales rose to an annual rate of 555,000 units in January and the February number should show sales rising further to an annual rate of 560,000 units.