Although the recent jobs report was a disappointment, the tepid February reading essentially offset January’s dramatic spike in job creation. Increased professional and business services hiring during the month was counterbalanced by a decline in construction payrolls. With a three-month moving average of 186,000 jobs through February 2019, the U.S. economy remains in growth mode. Wages continue to rise, while the unemployment rate trended downward after rising in January in response to the government shutdown. Despite the economy’s continued performance, the dissipating stimulus from recent federal tax cuts, a soft housing market, and disappointing retail sales, combined with rising headwinds in the form of weaker global economic growth and elevated geopolitical risks generate expectations for more modest job creation going forward.
*WTI Crude Oil Spot Price. Data points through end of March 2019. Change represents month-over-month change.
GDP increased by 2.2% in 4Q18, a downward revision from the 2.6% first reported in February and below the 3.4% annualized rate reported in the quarter prior. The deceleration was driven by multiple factors. Non-defense government spending declined, and private inventory growth was flat after a strong third quarter. Additionally, the growth in demand for non-durable goods decelerated after strong gains through mid-year 2018. Demand for services also slowed to its lowest 4Q reading since 2015. Although the U.S. economy is expected to expand going forward, slowing economic growth will weigh on growth expectations.
Following a strong showing in February, consumer confidence dipped in March 2019, as the combined effects of stock market volatility and a tepid February jobs report weigh on the consumer psyche. The confidence index dropped to 124.1 in March 2019 from 131.4 the previous month but remains well above its long-term historical average of 91.0. While consumers remain relatively optimistic, the index’s continued decline from its late-2018 peak indicates slower growth ahead.
After recording a strong start to 2019, total retail sales growth, excluding autos declined by over 40 bps from January to February. Although a slowdown in consumer spending is a signal of a slowing economy, more practical factors including winter weather across the nation and delayed tax refunds likely contributed to the recent dip in retail sales growth. With expectations for more modest economic growth going forward, it is likely that retail sales will remain in a lower gear compared to recent years.
As the peak home-selling season begins, the U.S. housing sector appears to be sending mixed signals. After several years of robust home price appreciation, the rate of growth has slowed. While a positive for aspiring homeowners, slower home price appreciation has led to more muted construction activity, as evidenced by the 9% drop in the annualized home start rate between January and February. Coinciding with the decline in home starts, the months-of-supply inventory of new homes fell from 6.5 to 6.1 months. Since the end of 2017 the amount of monthly supply has been trending upward, an indication that homes are sitting on the market longer. However, 30-year fixed mortgage rates dropped over 20 bps in the last week of March, its largest weekly decline in over a decade. As such, more potential homebuyers may be encouraged to pursue homeownership if they are able to find a home within their budget.
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