What I Saw Last Week

Inflation, as measured by the Consumer Price Index, rose by 0.2% in February with core CPI (which excludes food and energy) also rising by 0.2%.


Increases in the indexes for shelter, apparel, and motor vehicle insurance contributed to the gain in total CPI. The food index was unchanged while the energy index increased slightly. With the monthly changes, total CPI was up 2.2% for the 12 months ending February, up from 2.1% for the 12 months ending January. Core CPI, meanwhile, was up 1.8%, unchanged from the 12 months ending January.

The takeaway for is that the consumer inflation trend is not accelerating in a worrisome fashion.

U.S. Retail Sales declined 0.1% in February on the heels of an upwardly revised 0.1% decline (from -0.3%) in January. Excluding auto sales, core retail sales rose 0.2% following an upwardly revised 0.1% increase (from 0%) in January.

retail sales

A 0.9% decline in motor vehicle sales weighed on overall retail sales along with a 1.2% decline in gasoline station sales and a 0.4% decline in general merchandise store sales. Building material sales jumped 1.9%. Non-store retailer sales increased 1.0%. The biggest jump in sales, though, was the 2.2% increase logged by sporting goods, hobby, book and music stores.

Core retail sales, which exclude auto, gasoline station, building materials, and food services and drinking places sales, were up a modest 0.1%. This component factors into the computation of the goods component for personal consumption expenditures, so it should help keep Q1 GDP growth estimates in check.

The takeaway from the report for market participants is that it is another data point that should forestall any leaning by the Federal Reserve toward a fourth rate hike this year.

U.S. Housing Starts ran at a seasonally adjusted annual rate of 1.236M units in February versus an upwardly revised 1.329M units (from 1.326M) in January, which was the highest since October 2016.


Single-family starts, where the supply is most needed, rose 2.9% to 902,000 with gains in the South (+4.1%) and the West (+8.8%) — the country’s two largest regions — driving the increase.

The number of units under construction edged higher from January to 1.115M, leaving the first quarter average slightly above the fourth quarter average. That will qualify, then, as a positive input in Q1 GDP growth estimates.

U.S. Building Permits were at a seasonally adjusted annual rate of 1.298M versus a downwardly revised 1.377M (from 1.396M) in January. Single family permits dipped 0.6% to 872,000 while multi-unit permits fell 14.8% to 426,000.


Starts and permits were weaker than expected, yet the takeaway is that there was some underlying detail in the report that helped offset the headline misses, namely the increase in single-family starts and the uptick in the number of units under construction.

Consumer Sentiment in March jumped to 102.0 from 99.7 in February. The March reading is the highest level for the index since April 2004.


Income expectations among the top-third income households fell more and inflation expectations rose more, which could possibly be a setup for continued sluggishness in consumer spending, according to the report, since top-third households drive more than half of all consumption expenditures.

The takeaway from the report is that the gain in the Sentiment Index was driven entirely by households with incomes in the bottom third. Another notable takeaway is that near-term inflation expectations increased to their highest level in several years.

What to Watch for This Week

U.S. Existing Home Sales dropped 3.2% in January to a seasonally adjusted annual rate of 5.38M. I expect to see a modest bump in the February number to 5.42M units.

U.S. New Home Sales dropped by 7.8% in January to an annual rate of 593,000 units. I think that we will see a pretty substantial upward move to an annual rate of 620,000 when the data is released on Friday.