This Week’s Economic Update, April 19, 2021

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I discovered baseball before I even went to kindergarten.  There was nothing better than the smell of a well oiled glove.  There was no sound better than that of a bat and ball connecting.  Throwing the ball around the horn was always energizing as you knew you were one out closer to getting off the field.  As a purist it took me a long time to get used to the designated hitter rule.  I am still not a fan of giving a runner 2nd base in extra innings.  Now I hear the powers that be are upset over how many strikeouts are being thrown.  Their answer is to investigate moving the pitching rubber back 18 inches.  Bad enough that Ernie Banks old quote, “Lets Play Two” now means two shortened games of 7 innings each.  At least in Town Ball, played across the nation by amateurs, is as close to pure baseball as we can get, for a fraction of the price.

The economy continues to heat up.  Both New York and Philly Fed manufacturing numbers exceeded expectations so far for April.  The Philly number in particular at over 50, is the highest in over 25 years.  Embedded in the reports were strong indicators that the growth is going to continue.  New orders, back logs and employment all rose.  Overall there are strong signals that the growth will continue over the next sixth months.

Not unexpectedly retail sales were strong in March.  The retail sales growth between February and March was up 9.8%.  Part of this was the weather in February that depressed shopping, but pent up demand by consumers as the economy opened was the real driver here. The details in the report show how the consumers are making up for lost time from the past year.  The largest growth area was sporting goods, up 23%.  Clothing was up 18%.  New vehicle purchases were up 15%.  Building materials were up 12%, more about this later.  Lastly, a sign that we are all getting back to work, gasoline sales grew 11%.  The only limitation in retail sales growth appears to be the supply chain.  Inventory levels continue to be stressed in many areas.

Housing starts in March were 1.73 million, producing a 19% increase month over month.  Again, the cold weather in February assisted this figure.  However, regardless of what happened in February, that many starts was impressive.  Looking deeper into the numbers gives us a clearer picture of the market.  Single family housing starts accounted for 1.2 million of the total starts. The real estate market has been hamstrung by the lack of existing housing stock put up for sale.  The buyers want single family units which are hard to come by.  Builders first had trouble finding land priced reasonably to make an acceptable profit.  Now the issue is building materials which are virtually impossible to get in some markets.  That is where the new housing permit numbers are coming into play.  New permits were up, but only by 2.7%, well below expectations.  However, if builders can not get materials right now, there is no reason to apply for a permit.

The residential real estate market got a nice boost this past week when long term rates unexpectedly fell.  Long term rates are set by the bond market.  Bond buyers will only offer to purchase bonds when the rate is high enough to entice them to buy based on their expectations of inflation plus a proper return.  Until recently the Federal Reserve was clearing the market to keep longer term rates low to assist the economy.  In February the purchases were cut back allowing rates to rise to a moderate level.  That, along with overseas bond buyers who are seeing better investment returns in the US as opposed to their domestic markets.  Over the last two weeks the US has seen significant investment from Asia, Japan and other countries which has allowed our long term rates to trend downward.  Mortgage rates in turn have fallen.  The changes to rates have increased the mortgage originations for both refinances and new purchases.  As long as the supply chain for construction materials can keep up, we should see a strong Summer of construction growth.

Have a great week.

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