U.S. economic indicators from this week were mixed but remain consistent with an ongoing moderate GDP expansion in the first quarter.
The Conference Board’s Leading Economic Index posted its 20th consecutive month without a decline in January, surging by 1.0 percent. This index is designed to forecast general economic growth over the next six months. The Coincident Index, designed to provide a reading on current conditions, was up by 0.1 percent in January. This was the 48th consecutive month without a decline for the Coincident Index. The Lagging Index, designed to show recent conditions, was also up by 0.1 percent in January. The positive readings for all three indexes indicate favorable overall conditions.
Existing home sales for January decreased by 3.2 percent, to a 5,380,000 unit annual rate. The months’ supply of existing homes for sale in January ticked up slightly, to a still-low 3.4 months. The median sales price of an existing home was up by 5.8 percent in January, over the previous 12 months.
The 30-year-fixed mortgage is up to 4.64 percent for the week ending February 16, according to the Mortgage Bankers Association. First-time buyers are vulnerable to a decline in housing affordability as prices increase and mortgage rates go up.
Mortgage applications for purchase dropped noticeably in the first two full weeks of February.
Weekly labor data looks good through mid-February. Initial claims for unemployment insurance fell by 7,000 for the week ending February 17, to hit 222,000. Continuing claims for the week ending February 10 fell noticeably, by 73,000, to hit 1,875,000, a very low level.
The Federal Reserve released the minutes of the January 30/31 FOMC meeting. The tone of the minutes was generally upbeat about the U.S. economy. There was a good amount of discussion in the minutes on inflation. Most of the discussion centered on the theme that there was potential for more inflation, especially as labor markets continue to tighten. However, it was noted that most readings of core inflation remain at or below the Fed’s symmetric 2-percent inflation target.
There was nothing in the minutes to suggest that the FOMC was deviating away from the expected three fed funds rate hikes this year. However, the assessment of economic and financial market conditions in the minutes are backwards looking, as of late January.
We continue to expect to see a fed funds rate hike announced at the conclusion of the upcoming March 20/21 FOMC meeting. According to the fed funds futures markets, the implied probability of a March 21 rate hike is about 83 percent. Importantly, the FOMC will be issuing a new “dot plot” and a new set of economic projections at the upcoming March FOMC meeting.
New Fed Chairman Jay Powell is scheduled to deliver the semiannual “Humphrey Hawkins” testimony to Congress over February 28 and March 1.
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