U.S. economic data showed mixed trends in housing and ongoing improvement in the manufacturing sector. The biggest economic news came from financial markets with some profit taking in stocks on Tuesday and from Washington where political power struggles are challenging healthcare reform.
The stall in healthcare reform suggests there is some downside risk to the pro-growth Trump Administration agenda. Healthcare impacts the budget. The budget impacts tax reform. Tax reform impacts trade policy. All the above impact the Administration’s ability to pull off a major infrastructure program.
Existing home sales fell in February by 3.7 percent to hit a 5,480,000 unit annual rate. With weaker sales, very tight inventories increased a bit, to a still tight 3.8 months’ worth. The median sales price was up 7.7 percent in February over the previous 12 months.
New home sales were better than expected in February, increasing by 6.1 percent to a 592,000 unit annual rate in a continuation of the upward trend in new home sales that began in 2011.
Initial claims for unemployment insurance for the week ending March 18 increased by 15,000, to hit 258,000, which is still a very low number. Continuing claims for the week ending March 11 fell by 39,000, to hit an even two million. Continuing claims look like they are levelling out near the late-cycle lows of 1988 and 2000.
New orders for durable goods increased by 1.7 percent in February after a 2.3 percent gain in January. Commercial aircraft orders were strong in both months. The core measure, nondefense capital goods excluding aircraft, was little changed in January and February.
U.S. and global economic fundamentals continue to look good, which should provide a floor for downward momentum in stocks.
Oversupply in the U.S. and globally is putting downward pressure on oil prices. WTI crude oil fell from over $53 per barrel in early March to about $49 in mid-March, and fell again to $47.50 at mid-week. Lower oil prices reduce inflationary pressure, suggesting marginal downside potential for Fed rate hikes.
We believe that the Fed still needs to set expectations for the second half of the year. Those expectations will be shaped in part by oil and politics.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: Comerica_Economic_Weekly_ 03242017.