- Used-vehicle prices heat up.
- Housing, retail sales hit by severe weather.
- Consumer sentiment on the rise.
The trend in new daily COVID-19 cases has stopped declining, but hospitalizations and deaths continue to fall. Improving conditions are leading to rollbacks of restrictions, and economic activity is picking up. But joblessness remains stubbornly high.
Jobless claims mixed: The jobless claims data last week were mixed. New initial jobless claims increased. Traditional continuing claims declined by only 18,000 to 4.12 million as of March 6. In the latest data, 18.2 million Americans remain on some form of unemployment benefits including pandemic unemployment assistance, which provides coverage beyond 6 months. New initial claims as of March 13 increased by 45,000 to 770,000. New claims remain higher than the highest point during the Great Recession, but claims should start declining in future weeks with economic activity picking up with fewer restrictions.
Retail sales decline: Retail sales fell in February as the mid-month severe storms impacted most categories. Retail sales declined 3.0% in February, but January’s increase was revised higher than originally estimated. Auto sales underperformed against other goods as sales excluding motor vehicles and parts declined 2.7% while motor vehicles and parts were down 4.2%. Most categories saw declines. The biggest decliners were retail department stores, sporting goods stores and even non-stores (e-commerce). Food service and drinking establishments also declined.
Construction hit by weather: Residential construction was also impacted by the severe weather in February. The seasonally adjusted annualized rate of starts declined 10.3%, and permits declined by 10.8%. Starts are typically impacted the most in winter months, but this time even permits were impacted as severe weather was especially disruptive in large construction markets like Texas that normally do not see winter weather disruptions.
Housing starts were down 9.3% from last February. Permits were up 17% year-over-year and likely better reflect the true growth trend for new construction. Permits lead starts, and the permitting pace at 1.682 million units substantially exceeds the 1.421 million starts pace. This implies that starts will likely increase as conditions allow. Underneath the totals, the split in the composition of new construction is no longer as wide as it had been last year. Single-family permits were up 15% from a year ago, while multi-family permits, which had been lagging were up 21%.
Used-vehicle prices rise: Wholesale and retail used-vehicle prices are accelerating so far in March. Used-vehicle sales were also impacted by the winter storms, but momentum improved starting the last week in February and continuing through March so far. Wholesale vehicle price increases are accelerating. The seasonally adjusted Manheim Used Vehicle Value Index increased 3.7% comparing the first 15 days of March to the month of February. The non-seasonally adjusted monthly change was up 5.5%. Retail prices have also increased in each of the last three weeks.
Low rates continue: The Fed is staying on course with low rates and quantitative easing until the unemployment rate is back to 3.5%. They will tolerate higher inflation, which they deem to be transitory this year with upwardly revised growth expectations. Longer bond yields have been rising because of higher growth and inflation expectations, and average auto and mortgage rates are trending higher as a result. The absolute lowest rates are likely behind us, but rates remain very low by historical standards.
Consumer sentiment improved: The daily measure of consumer sentiment from Morning Consult has seen improvement in all but two days so far in March. After solid increases in February as well, the index is up 10.9% from January 31. The index increased every day last week and was up 2.7% week over week. The index is at its highest point since March 17, 2020, but remains down 12.4% compared to the end of February 2020.