Halyard’s Weekly Wrap – 4/19/24

4/19/24 – Was Powell Born a Ramblin’ Man?

The red-hot economic data continued this week with the release of March Retail Sales.  The report showed that retail sales rose 1.1% over the previous month, more than double what was expected.  February retail sales were revised to a 0.6% monthly gain from the 0.3% that was first reported.  The gains were broad based and have some economists thinking that the Q1 GDP forecast may be too low.  The estimate last Friday was for 2.1% growth, but the consensus thinking as of this morning is 2.5%.

The one sector where consumers were not spending last month was housing.  Housing has been in a slump since the Fed began raising interest rates, causing affordability of home ownership to slip away from most first-time home buyers.  The trend had shown signs of bottoming at the end of last year as the forecast for lower interest rates piqued buyer interest.  But that reversed in March as it became apparent that interest rates will remain stubbornly high.  Current 30-year mortgage rates have again topped 7% which has been a level of deterrence to home buyers.

The various Fed speakers this week reinforced the view that we won’t see three rate cuts this year and traders reacted negatively when New York Fed President John Williams mentioned another rate hike, which he assured listeners was not his base case.  Even that mention leads us to believe it’s in the back of his mind and may be discussed at the next FOMC meeting.

As an aside, we read through the Federal Reserve’s beige book on Wednesday and were befuddled by its conclusions.  The beige book qualitatively aggregates economic conditions across the 12 Federal Reserve districts by surveying a diverse population.  The conclusion was “ten out of twelve districts experienced slight to modest growth,” and “consumer spending barely increased at all.”  Indeed, looking through the summaries of each of the districts, the conclusion did not jibe with what we’re seeing in the “hard” data.  We’ve concluded that it’s a misperception of what survey participants believe is happening in the economy versus what is actually happening.

Next week, in addition to the first look at Q1 GDP, the government will release data on durable goods and home sales, with the University of Michigan surveys rounding out the week.  The last survey of 12-month forward inflation ticked up 0.2% to 3.1%, an unwelcome sign of consumer psychology on where prices are heading.