MARKET UPDATE: DURABLE GOODS ORDERS, GDP, PERSONAL INCOME AND SPENDING, PERSONAL CONSUMPTION EXPENDITURES

What We Are Watching This Week

• Durable Goods Orders
• GDP
• Personal Income and Spending
• Personal Consumption Expenditures (PCE)

Highlights From Last Week

• US Retail Sales
• US Housing Starts and Building Permits
• Industrial Production and Capacity Utilization

Stocks faced a third consecutive week of decline, driven by worries over Middle East tensions and the potential for prolonged higher U.S. interest rates. Mega-cap tech struggled due to rising rates and a revenue miss from ASML Holdings, impacting AI-related earnings. Small-cap stocks struggled further, pulling the Russell 2000 Index into deeper negative territory for the year. Initially buoyed by relief over Iran’s retaliatory strike on Israel, optimism faded as Israel signaled a firm response, with stocks falling further following Israeli strikes on Iranian targets. In Europe, the STOXX Europe 600 Index closed 1.18% lower amidst escalating Middle East tensions, while major European indexes showed mixed performance. The TSX slipped 0.4% in Canada after a 1.6% decline the previous week.

According to firms responding to the April 2024 Empire State Manufacturing Survey, April business activity continued to decline in New York State, albeit at a slower pace compared to previous months. The general business conditions index rose slightly but remained negative at -14.3. Both new orders and shipments continued to decrease, with little change in their respective indexes. Unfilled orders also fell, while inventories slightly increased after several months of decline. Delivery times were shortened, but employment levels and hours worked continued to decline. Input prices increased slightly, while prices received remained steady. The future business outlook remained subdued, with only a minority of respondents expecting improvement in the next six months. The employment growth outlook weakened, and capital spending plans remained soft.¹

Retail spending in the U.S. continued its upward trend in March, marking the second consecutive month of growth and highlighting the resilience of the U.S. consumer, supported by a robust job market. According to the Commerce Department’s report, retail sales increased by 0.7% in March, slightly slower than February’s revised 0.9% gain but surpassing economists’ expectations of a 0.4% increase. These figures, adjusted for seasonal variations but not inflation, indicate a positive trend, with retail spending rising in seven out of the past ten months through March. Sales saw an uptick across various categories, with notable increases at gas stations, up by a robust 2.1% from February, partly attributed to rising gas prices. Retail sales rose by 0.6% in March, excluding gas station sales. Online sales experienced a significant surge, jumping by 2.7%, while specialty stores saw a solid increase of 2.1%. However, sales of electronics, clothing, and sporting goods experienced declines of 1.2%, 1.6%, and 1.8%, respectively. Analysts attribute the solid retail sales figures to factors such as promotional activities from e-commerce giants like Amazon, which contribute to the growth in online sales.²

In March, single-family housing starts plummeting by 12.4%, with a 5.7% decline in single-family building permits. Housing starts saw a significant decrease of 14.7%, with permits falling by 4.3%. Despite a severe shortage of previously owned houses for sale driving new construction, a resurgence in mortgage rates is dampening demand, leading potential buyers to hesitate. Wet weather may have impacted groundbreaking activity, with homebuilding falling in several regions but rising in the West. The National Association of Home Builders reported unchanged confidence among single-family home builders in April, with buyers waiting for more clarity on interest rates. The average rate on 30-year fixed-rate mortgages has risen toward 7%, potentially delaying a projected rate cut by the Federal Reserve. Fed Chair Jerome Powell suggested the need to keep rates higher for longer due to persistent inflation. Additionally, permits for future construction of single-family houses fell to a five-month low, signaling potential challenges ahead. Despite a rebound in residential investment in the second half of 2023, the housing market’s recovery is losing momentum. In March, housing projects with five units or more saw a sharp decline of 20.8% to a rate of 290,000 units, reaching the lowest level since April 2020. Overall, housing starts experienced a significant drop of 14.7%, the largest decline since April 2020, reaching a rate of 1.321 million units and falling below economists’ forecast of 1.487 million units. Permits for future construction of single-family homes also decreased by 5.7% to 973,000 units, indicating a potential slowdown in homebuilding activity due to rising mortgage rates. However, multi-family building permits remained unchanged at 433,000 units, while building permits decreased by 4.3% to a rate of 1.458 million units, the lowest level since last July. Economists anticipate housing making a modest contribution to GDP growth in the first quarter, with the housing market’s performance closely tied to upcoming inflation data. In March, the number of houses approved for construction but yet to be started increased by 0.7% to 273,000 units, while the single-family homebuilding backlog remained unchanged at 141,000 units. However, the completion rate for single-family homes decreased by 10.5% to 947,000 units, suggesting a potential for low supply and elevated prices. Overall housing completions declined by 13.5% to 1.469 million units. Realtors estimate that housing starts and completion rates must be within a range of 1.5 million to 1.6 million monthly units over time to address the inventory gap. Multi-family starts and permits surged after the pandemic, with the building backlog reaching record highs.³

On Tuesday, the Federal Reserve reported March industrial production experienced a 0.4% increase, although it declined at an annual rate of 1.8% in the first quarter. Manufacturing output saw a rise of 0.5%, driven partly by a 3.1% increase in motor vehicles and parts production; excluding motor vehicles and parts, factory output increased by 0.3%. The mining index fell by 1.4%, while the utilities index saw a 2% gain. Total industrial production in March remained unchanged compared to the previous year’s period, standing at 102.7% of its 2017 average. Capacity utilization increased to 78.4% in March, which is 1.2%  points below its long-run average from 1972 to 2023.⁴

In the week ending April 13, the seasonally adjusted initial claims for unemployment benefits remained unchanged from the previous week at 212,000. The last week’s level was revised up by 1,000. The 4-week moving average remained unchanged from the previous week’s revised average at 214,500. The total number of continued weeks claimed for benefits in all programs for the week ending March 30 decreased by 12,519 from the previous week, totaling 1,953,031. Comparatively, there were 1,821,910 weekly claims filed for benefits in all programs during the same week in 2023.⁵

The National Association of REALTORS reported that existing home sales declined in March. Sales decreased in the Midwest, South, and West regions but rose in the Northeast for the first time since November 2023. Year-over-year, sales decreased across all regions. Total existing home sales, including single-family homes, townhomes, condominiums, and co-ops, decreased by 4.3% from February to a seasonally adjusted annual rate of 4.19 million in March. Year-over-year, sales declined by 3.7%. NAR Chief Economist Lawrence Yun attributed the stagnant home sales to stable interest rates despite a significant increase in job numbers since pre-COVID levels, indicating a larger pool of potential homebuyers in the market. Housing inventory at the end of March increased to 1.11 million units, up 4.7% from February and 14.4% from the previous year. At the current sales pace, unsold inventory reached a 3.2-month supply, up from 2.9 months in February and 2.7 months in March 2023. Yun welcomed the increase in inventory, highlighting favorable conditions for listing properties with ongoing multiple offers on mid-priced properties and continued rise in home prices. The median existing-home price for all housing types in March was $393,500, reflecting a 4.8% increase from the previous year, with price gains observed across all four U.S. regions.⁶

In March 2024, The Conference Board Leading Economic Index (LEI) for the U.S. decreased by 0.3% to 102.4 (2016=100), following a 0.2% increase in February. Over the six months ending March 2024, the LEI contracted by 2.2%, a smaller decline than the previous six months. Negative contributions from various factors, including yield spread, new building permits, consumers’ outlook on business conditions, new orders, and initial unemployment insurance claims, drove the decline in March. The LEI’s growth rates remain negative but show a slowing pace of contraction, indicating a fragile outlook for the U.S. economy. Rising consumer debt, elevated interest rates, and persistent inflation pressures pose risks to economic activity in 2024. The Conference Board forecasts a cooling of GDP growth after rapid expansion in the second half of 2023, with moderation expected in Q2 and Q3 due to slowing consumer spending. Meanwhile, The Conference Board Coincident Economic Index (CEI) for the U.S. rose by 0.3% to 112.0 (2016=100) in March 2024, after a 0.1% increase in February. The CEI’s component indicators, including payroll employment, personal income minus transfer payments, manufacturing and trade sales, and industrial production, all showed improvement in March, with industrial production and personal income mFinus transfer payments making the largest positive contributions. The Conference Board Lagging Economic Index® (LAG) for the U.S. remained unchanged at 119.0 (2016=100) in March 2024, following a 0.3% increase in February. Over the six months, the LAG recorded a 1.0% increase. Overall, while the LEI’s year-over-year growth remains negative, it is showing an upward trend.⁷

1. https://www.newyorkfed.org/survey/empire/empiresurvey_overview
2. https://www.census.gov/retail/marts/www/marts_current.pdf
3. https://www.census.gov/construction/nrc/pdf/newresconst.pdf
4. https://www.federalreserve.gov/releases/g17/current/default.ht
5. https://www.dol.gov/ui/data.pdf
6. https://www.nar.realtor/newsroom/existing-home-sales-descended-4-3-in-march
7. https://www.conference-board.org/topics/us-leading-indicators

Important Information: 

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.  

Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Canadian Industry Regulation Organization (CIRO) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors.  

Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc. (“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds.  

The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavors to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions.