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Monday Update: Consumer Sentiment Surges in March

March 29, 2021

Last week saw the release of a number of important economic updates. February’s housing sales and durable goods orders reports continued to show the negative impact from winter weather during the month, but the recent initial jobless claims report and March’s consumer sentiment survey point toward potentially faster growth. This will be another busy week of updates, with a focus on consumer and manufacturer confidence as well as March’s employment report.

Last Week’s News

On Monday, the February existing home sales report was released. The pace of existing home sales fell by more than expected, declining by 6.6 percent during the month against forecasts for a more modest 3 percent drop. This result was likely due in large part to the inclement weather during February. Despite the monthly drop, however, existing home sales on a year-over-year basis are up by 9.1 percent. This fact highlights the rebound in sales we’ve seen since initial lockdowns were lifted last year. The increase in the pace of existing home sales over the past year has been largely driven by record low mortgage rates and shifting home buyer preference due to the pandemic. Looking forward, however, low levels of supply and rising mortgage rates and prices may serve as a headwind for significantly faster levels of existing home sales.

Tuesday saw the release of the February new home sales report. The pace of new home sales fell by 18.2 percent during the month, in a much-larger decline than the forecasted 5.7 percent drop. As was the case with existing home sales, new home sales were hampered during the month by the winter storms that negatively affected home buyer foot traffic. New home sales are a smaller and often more volatile portion of the housing market compared with existing home sales. This report brought the pace of new home sales to a nine-month low. Still, even with the larger-than-expected drop in sales in February, the pace of new home sales is up by 8.2 percent on a year-over-year basis. We may be poised for a rebound in housing sales in the upcoming months given moderating weather. On the other hand, rising mortgage rates and low levels of supply could continue to pressure future sales growth.  

On Wednesday, the preliminary estimate of February’s durable goods orders report was released. Durable goods orders fell by 1.1 percent during the month, following an upwardly revised 3.5 percent increase for January. This decline, which was below economist estimates for a 0.5 percent increase, was likely due in large part to the winter weather. The decline in orders was widespread, as core durable goods orders, which strip out the impact of volatile transportation orders, fell by 0.9 percent against calls for a 0.5 percent rise. These declines in headline and core durable goods orders echo similar weather-related declines seen in manufacturing output in February. Still, business confidence remains at high levels. With a return to more normal weather in March, durable goods orders are expected to rebound next month, which would be a good sign for overall business spending in the quarter.

Thursday saw the release of the initial jobless claims report for the week ending March 20. The number of initial unemployment claims during the week fell from 781,000 to 684,000, against economist estimates for a more modest decline to 730,000. This better-than-expected result represents the lowest number of initial jobless claims in a week since the start of the pandemic. While claims have been volatile on a week-to-week basis, we’ve seen a marked improvement in initial claims over the past two months. This improvement has likely been driven in large part by the easing of restrictions at the state and local levels, which has helped spur a faster recovery for the job market. We saw this trend in February’s employment report, which showed a surge in leisure and hospitality hiring. Overall, this report was encouraging, as it indicates we may be set for an even faster job market recovery looking forward.

On Friday, the February personal income and personal spending reports were released. Personal spending fell by 1 percent during the month, partially offsetting the upwardly revised 3.4 percent spending increase in January. This 1 percent decline was slightly worse than economist estimates for a 0.8 percent drop, but it echoed a similar decline in retail sales during the month. Compared with the January report, this result reflects the fading impact from the $600 stimulus checks that hit bank accounts in January. Personal income fell by 7.1 percent in February, a slightly better result than the estimated 7.2 percent decline. Personal income has been very volatile on a month-to-month basis since the start of the pandemic, driven by shifting federal stimulus and unemployment payments. The decline in February reflects the lack of direct stimulus payments during the month. Looking forward, both income and spending are expected to rebound in March due to the recent $1.9 trillion stimulus bill. These checks hit bank accounts during the month.

We finished the week with Friday’s second and final release of the University of Michigan consumer sentiment survey for March. The initial estimate released earlier in the month saw this widely followed measure of consumer confidence increase from 76.8 in February to 83 in March. The second estimate showed a further improvement, as the index finished the month at 84.9. This result, which was better than economist estimates for an increase to 83.6, represents a new post-pandemic high for the index. The intramonth improvement was driven by improving consumer views on both current economic conditions and future expectations. Most likely, the recent stimulus bill and continued improvements on the public health front contributed to the result. This report is a good sign for a potential consumer spending rebound in March. Improved confidence and another round of stimulus check hitting bank accounts should support a swift recovery for spending in March. Overall, this encouraging report points toward a potential faster-than-expected recovery as we head into the spring.

What to Look Forward To

On Tuesday, the Conference Board Consumer Confidence Index for March will be released. Confidence is expected to increase from 91.3 in February to 96 in March, echoing the improvement we saw in the University of Michigan survey during the month. If the estimates hold, this release would mark three straight months with improving confidence. In addition, it would bring the index to its highest level since October 2020. The improvement in February was largely driven by improving consumer views on current economic conditions during the month, which in turn were likely due to the positive impact of federal stimulus payments and the improving public health situation. If we continue to see similar improvements in confidence in March, they would be a good sign for a potential rebound in consumer spending. Improving confidence typically supports faster spending growth.

On Thursday, the initial jobless claims report for the week ending March 27 is set to be released. Economists expect to see the number of initial unemployment claims decline modestly from 684,000 to 678,000. This result would bring the pace of weekly layoffs to its lowest level since the start of the pandemic, bettering the previous post-lockdown low from the week before. The improvement we’ve seen recently for initial claims is likely due in large part to easing of the state and local restrictions put in place to slow the third wave of infections. With continued easing of restrictions and the anticipated tailwind from the recent stimulus bill, we may be set for accelerated improvement for the labor market over the coming weeks. This would be a good sign for the pace of the overall economic recovery.  

Thursday will also see the release of the ISM Manufacturing index for March. This widely followed gauge of manufacturer confidence is expected to increase from 60.8 in February to 61 in March. If the estimates hold, the index would sit at its highest level since 2004, highlighting the impressive rebound in manufacturer confidence seen since initial lockdowns were lifted last year. In February, manufacturer confidence was supported by high levels of buyer demand, as well as low levels of business inventory. These trends are expected to remain supportive in March. This is a diffusion index, where values above 50 indicate growth. Manufacturing confidence near current levels would support continued healthy levels of spending and growth for the industry, which in turn would be a good sign for overall economic growth.

We’ll finish the week with Friday’s release of the March employment report. Economists expect to see 623,000 jobs added during the month, which would be a notable increase from the 379,000 jobs gained in February. If the estimates prove accurate, this report would represent the most jobs added in a month since October 2020. This would be an encouraging signal that improvements on the public health front and the associated easing of state and local restrictions are driving an accelerating labor market recovery. The underlying data is also expected to show improvement, with the unemployment rate set to fall from 6.2 percent to 6 percent. This decline would bring the report to a new post-lockdown low. Ultimately, a lot of work must be done to get employment back to pre-pandemic levels. Nonetheless, given the improvements on the public health front and the tailwind from the recent stimulus bill, we may be set for a faster recovery for the job market over the next few months.

That’s it for this week—thanks for reading and stay safe!