Week of March 24
Locked In The Truck Of A Car
Another week of tariff discussion (this time on autos) and the threat of reprisals dominating the economic landscape. The uncertainty over the trade war, and how long it will last, has rattled consumers, businesses, and the stock market. The S&P500 is down 7% from its February peak, and while the stock market is NOT the economy (and to finish the Kai Rysdall quote, the economy is NOT the stock market) it does give a sense of what investors are thinking.
Thinking back to core economic elements though, the economy is bending and, so far, not breaking. The labor market will continue to cool and will pull US economic growth lower with it. Still no serious fear of recession in my mind, but the length of the trade war will certainly dictate the outcome.
Important Data Points From The Past Week
U.S. New Single Family Home Sales
A good month for new home sales in February, rebounding from an especially bad January. Sales hit 676K units (seasonally adjusted annual rate) in February, up 1.8% from the previous month. Regionally, sales in the Northeast were down sharply (again); sales were down in the West, but they were the only region to increase in January. Sales were up in the Midwest and South.
I’m still expecting new home sales to be up 6.4% this year, but affordability/tariffs etc. will restrain what should be stronger potential growth based on demand. This is especially good news for the nonresidential sector since single family activity leads the market – once a development goes in stores, schools, hospitals etc. will follow. Remember, though, that this happens with a lag – meaning the nonresidential sector won’t feel this till 2026.
U.S. Advance Durable Goods Orders
New orders for nondefense capital goods, excluding aircraft, slipped in February – losing 0.3% from January. New orders have been particularly resilient over the last few months, likely from a spate of stockpiling due to the potential for tariffs. February’s decline (especially if continued into March) could be construed as a course reversal as the uncertainty over if/how/when tariffs continue.
The detailed orders data is lagged one month (so it’s January data), but it reinforces the stockpiling theory. New orders for construction materials and supplies posted a very robust 1.5% increase in January while HVAC equipment posted its second consecutive double-digit gain (+18.9% m/m in January). I would anticipate that these gains in construction-related orders will persist for at least one more month.
U.S. Personal Consumption Expenditure Deflator
The Fed’s preferred measure of inflation rose in February, climbing 0.3% m/m and 0.4% for the headline and core respectively. On a year-over-year basis the headline is 2.5% higher and the core measure is up 2.8%.
Inflation had been moderating closer to the Fed’s 2% target, but that trend has stalled out. Last week the Fed raised their forecast for inflation and depending on the track of tariffs inflation may head higher still. Big picture, the data continues to suggest that the FOMC won’t be lowering interest rates anytime soon.
What I’ll Be Watching This Week
This is a busy week on the data front: construction spending, vehicle sales, and March’s employment report are all pending.
What I Watched Last Week
This show from the brains that gave us Peaky Blinders is good. Really good. It’s loosely based on real people in London’s East End in the 1880s – for real crime fans this is also the time when Jack the Ripper was active. To be honest, I’ve been shying away recently from shows that are too intense and instead opting for humor. But my wife made me watch an episode and I’m hooked.
How Can I Help?
I’m taking on a limited number of clients to help with bespoke analysis of the economy and construction and what it means for your company. I’m also available if you’re in need of a speaker at an event or someone to come talk to leadership groups on the state of the economy, demographics, real estate, and construction.
If you want to discuss either option, sign up for a spot on my calendar.
Do you know someone who would benefit from the information in this newsletter? Please share the sign up link with them.