March Philadelphia Fed NonManufacturing Index and February New Home Sales

KEY DATA:  Sales: -18.2%; Over-Year: +8.2%; Prices: +5.3%/ Phil. Fed (NonMan.): +34.7 points: Orders: +15.9 points; Hiring: +6.2 points; Expectations: +9 points/

IN A NUTSHELL: “People may be starting to buy all types of things once again and demand will pick up even further once the housing markets thaws out.”

WHAT IT MEANS: The March winds may blow chilly and cold (only paraphrasing S&G today), but they are still warming the economy back up.  Indeed, the first set of March data are looking really good, which is absolutely no surprise.  The Philadelphia Fed’s NonManufacturing Index surged in early March and the details were really good.  Demand for nondurable goods and services rose sharply, though the percentage of firms still seeing orders fall remained relatively stagnant.  The big change was that firms who were seeing no change moved into the growing category.  Hiring accelerated for full-time workers but not for part-timers.  That shows growing confidence in the future.  But there were clear signs of building cost and price pressures.  Wage and benefits expenses are rising faster, as are prices of inputs and prices the firms are receiving.  Everyone seems to be able to raise their prices now.  Looking forward, optimism is high and building even further. 

The final set of major housing numbers are coming in and it will be nice when we see the last of the February reports.  This time, new home sales numbers took a major tumble, and every region posted double-digit declines.  The Midwest was hit the hardest, dropping 37.5% over the month.  Nevertheless, purchases were still higher this year compared to February 2020, so you can see how far the market has come.  Even with the February pull-back, total sales for the first two months of 2021 are over twelve percent higher than in the same period of 2020.  Builders are trying to keep up with demand and the number of homes under construction continues to rise.  Price gains are moderate, which is good news for buyers.IMPLICATIONS:  The weather is warming, the money is flowing and confidence is rising.  Those are indicators of better times to come.  When you put upwards of six billion dollars into a roughly twenty-one billion dollar economy, you know things are going to pop.  So, the good times should be flowing for most of the remainder of the year.  How fast depends upon how much households save or pay down debt.  They have been pretty responsible with the previous government checks and there is every reason to think that the savings rate will remain high.  The difference now, though, is that the end of the pandemic is no longer a wish but something we can expect.  Thus, I expect consumption over the next six months to be huge.  But that also means there will be a lot less at the end of this year, when the spigot has been turned off, to carry growth forward through next year.  Wage and salary gains will eventually have to replace government welfare and earnings will have to replace federal grants and loans, which are also welfare.  So, here’s an early warning to businesses:  This year, expect a great economy, but when the 2022 planning season comes around, start building in a lot slower economy.