Week of March 17

Lion or Lamb?

This week was a whirlwind. Spring sprang (albeit briefly) here in the Northeast and the warmer weather brought with it longer walks with the dog, the start of the high school rowing season, and frankly a much more positive outlook.

Part of that I’m sure has to do with the comparatively quiet week on the tariff front. Last week’s data was decent, with the main outlier being the Fed’s weaker forecast for economic growth. Not surprising, but still.

By Friday the clouds and chill were back and so is the potential for snow early this week. Is this foreshadowing the upcoming data releases? Time will tell, but it does feel like we’ve heard one shoe drop and are just waiting for that next one.

I think March came in like a lion…let’s hope it goes out like a lamb.

Important Data Points From The Past Week

U.S. Retail Sales

If you were wondering about the state of the consumer mind, the February retail sales data should provide a hint. Total retail sales rose 0.2% from the month, weaker than the consensus call of 0.6%. Core retail sales (excluding food/auto) rose 0.6% during the month. Most telling, though, was the fact that January retail sales were revised down.

On the weaker side, gasoline sales were down, but that’s a reflection of lower gas prices. However, restaurant, clothing, sporting goods, and electronics were all lower in the month. These are all good barometers of short-term consumer sentiment, i.e., “can I afford to take my family out to dinner?” While two months of data do not a trend make, it’s clear that consumers are thinking twice before parting with their cash. Another sign that the economy is slated to slow.

U.S. Housing Starts

Not a bad month for housing starts in February; total housing starts rose 11.2% from January on a seasonally adjusted annual rate basis. Single family starts were up 11.4%, while multifamily starts jumped 12.1%. Permits though were down, falling 1.2% in February. Single family permits were down 0.2%, while multifamily permits lost 4.3%.

It’s still too early to make any sort of call on tariff-related impacts to housing – the March data may give us an early look. Though, according to the NAHB homebuilder confidence is at its lowest point in seven months. Housing construction will certainly weaken over the course of the year – the question remains by how much? For now, the February data is giving me no cause to question my forecast.

Canadian Consumer Price Index

Wow. Canadian consumer prices came in hot in February, with headline inflation rising 0.7% from January. Much of that was due to the end of the tax holiday, but even excluding that, prices were up 0.4%. On a year-over-year basis headline inflation accelerated to 2.6% and core was up 2.7%.

The pickup was pretty broad-based, but the largest gains were in food, recreation, and alcohol – all of which benefited from the tax holiday. Between the end of the tax holiday and the rescinding of the carbon tax the inflation data will be squirrely over the next couple of months. Regardless, the Bank of Canada will be fairly cautious going forward with their rate policy until they can see a clearer indication on U.S. tariff policy and its impact.

FOMC Policy Announcement

As widely expected, the FOMC decided unanimously to hold the target range for the federal funds rate unchanged at 4.25% - 4.5%. The statement that accompanies the announcement is usually poured over in an attempt to see if the committee will drop any hints on what they are actually feeling. One of the more telling statements in the current statement was, “uncertainty around the economic outlook has increased.” This is likely a not-so-veiled reference to the uncertainty over trade policy.

Along those lines, they also lowered their 2025 GDP growth projection from 2.1% to 1.7% and moved their 2025 inflation projection higher, from 2.5% to 2.7%. They are still anticipating two more rate cuts (25 basis points each) this year. I would anticipate that those rate cuts will happen later in the year as economic growth begins to wane.

Canadian Industrial Price Index

Canadian wholesale prices rose 0.4% month-over-month in February – the fifth consecutive increase. This was, though, a marked deceleration from the large jump in January. On a year-over-year basis, the total index slowed from 5.6% to 4.9%, while the core (total, excluding energy) had a much milder deceleration from 5.8% to 5.6%.

Energy prices retreated following their large jump the previous month, and with spring in the air they should continue to ease in the coming months. On the construction front, fabricated metals and construction material prices showed a slight acceleration on a year-over-year basis, as did plastic and rubber prices. Lumber and cement prices slowed, while furniture and primary ferrous metal products fell outright.

I continue to expect that reduced construction activity (and a generally slowing Canadian economy) will keep a lid on any price increases this year.

Canadian Retail Sales

Canadian retail sales were down in January, falling 1% in constant dollar terms from December. Much of the decline was due to a pullback in motor vehicles and food. Core retail sales (excluding auto/food/gas) were flat.

Unfortunately, this data is pretty lagged and a lot has changed in the broader macroeconomic landscape since January. That being said, the retail sales data supports to notion that the Canadian economy was on pretty solid footing at the end of last year, and even into the very early stages of 2025. It’s doubtful that consumers will continue to spend at this clip as the year moves on.

What I’ll Be Watching This Week

In the U.S. new home sales and inflation data will be at the top of my mind. It’s a quiet week in Canada with just GDP on Friday.

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