Economic Update: Light Data Points to Ongoing Growth

Economic Update: Light Data Points to Ongoing Growth

February 26, 2024


Housing Shows Signs of Improvement But Affordability Issues Remain

There were only two major economic data releases last week. We begin with Existing Home sales which increased to 4 million units, a 3% increase from the previous month, but still 2% less than a year ago.

While the median price dipped from last month, it remains 5% higher versus last year. While one month’s gain does not constitute a new upward trend, it is a positive sign that housing may have found its footing. The bulk of recent sales were in the $750K-$1M range where more inventory exists. Entry-level sales under $250k lagged. All cash sales accounted for 32% of deals, the most since June 2014, pointing to mortgage rates impacting affordability. So, while positive, issues remain at lower price points.

Unemployment Stays Low But Risks Exist

The other release was declining unemployment insurance claims, signaling an ongoing tight labor market. This is surprising given high-profile layoffs recently. However, job gains concentrate in few sectors, presenting downside risk.

Both numbers are near their lows historically which is positive for March 8th’s payroll number, but which may also give the Fed reason to continue to hold rates steady until summer as an overly strong job market can be inflationary. 

Low unemployment indicates a strong economy. But higher rates from the Fed lead to slower growth over time as expensive credit drags on consumers and businesses. So far though, the economy continues growing despite rate hikes, with resilient job markets and spending.

Economists See Growth But Question Monetary Policy

The National Association of Business Economists (NABE) recently released the results of their economic policy survey. While the survey covered a number of data points, we note two main issues.

  1. The number of respondents who believe we will enter a recession in 2024 is only 25% with many expecting ongoing economic growth throughout the year. While we are certainly surprised at recent economic growth, we believe that the Fed will be cautious in cutting interest rates as the recent declines in inflation has been mostly attributed to price declines in goods and we believe the Fed wants to see inflation decline in services as well. However, the Fed has its work cut out for it as holding rates too high for too long could also trigger a recession.
  2. The second issue from the NABE survey is in regards to an increase in the number of respondents who believe that monetary policy is too restrictive. In the survey, 21% of respondents believed that monetary policy is too restrictive (in other words that rates are too high), which is an increase from the August survey of 14%. Also, the number of respondents who believed that monetary policy is about right fell from 74% in August to 70% in February. We would agree that rates are still about right.

Global Growth and Inflation Data On Tap

In the week of February 26, there will be a number of data releases touching on income, inflation (PCE), housing (new home sales), and a first look at economy wide corporate profits from the revised GDP report. With particular focus on US PCE inflation, a continued ease could prompt a Fed rate cut. Supply chain issues may resurface with shipping disruptions presenting upside risk to prices. We expect market volatility around inflation and growth signals in big earnings reports and data.

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