Week of April 7
Slippery Slope
The U.S. economy is in a delicate balance as the stock market swoons and confidence ebbs. Friday’s University of Michigan consumer sentiment survey was the weakest reading since November 2022. Notably, the future expectations portion of the survey was especially dour. The consumer accounts for roughly two thirds of all U.S. economic output, and it’s their efforts since the pandemic that have kept the economy moving forward. If their spending habits track the sentiment survey (and they don’t always), the U.S. economy may quickly approach stall speed.
Important Data Points From The Past Week
U.S. Consumer Price Index
The March CPI data provided welcome relief for the Fed as consumer prices declined (Yes! Declined!) by 0.1% thanks to a 6% drop in gas prices. Even taking energy out, core CPI rose by just 0.006% - it’s weakest gain since early 2021. On a year-over-year basis, headline CPI fell to 2.4%, core fell to 2.8%, and the super core (excluding food, energy, and shelter) is at 1.8% - the first time that reading has been below 2% since late 2020.
Inflation continued to cool on the building product front, except for laundry equipment which accelerated. This is likely due to a pullback in consumer demand.
I think the Fed will take some solace from this reading but given that the March data does not have tariffs fully baked into it they will likely look through the data and hold the fed funds rate steady when they next meet in early May.
Canadian building permits were solid in February, increasing 3% from the previous month. Residential permits fell 3%, while nonresidential building permits jumped by 15%.
We shouldn’t downplay the positive nonresidential data, especially since it was pretty broad based through commercial, manufacturing, and institutional buildings. That being said, the odds that this will continue are fairly low. If, however, tariffs are reduced over the short term we may very well see some new life come into the Canadian building markets.
Canadian Building Permits
U.S. Producer Price Index
Like the CPI reading, wholesale prices fell in March with the PPI for final demand falling 0.4% from February. Like the CPI much of this decline was due to falling gasoline prices. On a year-over-year basis final demand prices were 2.7% higher.
While it’s good news on the headline number, construction-related prices showed a notable acceleration in March. Even with the reprieve on the reciprocal tariffs, construction prices are slated to rise and work to restrain growth in the sector. Construction activity will slow as the year progresses.
What I’ll Be Watching This Week
In the U.S I’ll be watching retail sales, industrial production, and housing starts for any sort of sign of a pronounced slowdown. In Canada we’ll get an inflation read and a policy decision from the Bank of Canada.
What I Watched Last Week
When I travelled a lot, I was addicted to what I called “airplane books”. These were not literary masterpieces: think Tom Clancy, Clive Cussler, and of course Lee Child. What attracted me to these books was their simplicity and that I could leave a novel or three in my jump bag of computer gear and pick them up and put them down without missing a beat. In the end the good guys always won. The world was saved. Everything was all right. It’s good to have a little of that in our lives, I think.
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