KEY DATA: Confidence: -4.6 points/ Home Sales: +5.8%/ FHFA Prices (Over-Year): +6.4%; Case-Shiller National Index (Over-Year): +5.8%

IN A NUTSHELL: “Home prices are soaring and housing sales are up, but reality is setting in and confidence is fading.”

WHAT IT MEANS: While we will not get the first reading on first quarter growth until Friday, it doesn’t look like it will be good. But that doesn’t mean we cannot get a rebound. For the economy to pick up steam the consumer is going to have to lead the way and it is not clear that will happen. Consumer confidence is starting to reflect the realities of governing, not the hopes that the swamp will be drained, whatever that means for economic policy. Not surprisingly, the Conference Board’s measure of consumer sentiment eased in April. After having soared since the election, the failure to implement any real policy changes has made people a little more uncertain about what will actually get done. Don’t be surprised if confidence retrenches for several more months or until Trump actually gets something passed.

Despite the decline in confidence, the level is still high and that has translated into growing willingness to take on debt. New home sales rose solidly in March, joining existing home sales which also rose at a strong pace last month. Compared to March 2016, sales were up an impressive 15.6%. The rise in new housing purchases occurred despite a modest slowdown in the Midwest. That portion of the country had posted a huge rise in February, so a small drop is nothing to be concerned about.

With sales up, so are prices. Both the Federal Housing Finance Agency and the S&P CoreLogic Case-Shiller home price indices jumped in February and have posted large over-the-year gains. We are not yet in a housing bubble, but the dearth of supply, which persists in both the new and existing housing segments, will likely lead to even faster price increases going forward.

MARKETS AND FED POLICY IMPLICATIONS: The markets are concentrating on earnings and the likelihood (?) or hope (?) that a moderate will win the French election. Thus, fears that France might pull out of the EU have been eased by this weekend’s first round results. And earnings have been okay despite soft growth. A weaker dollar hasn’t hurt, but that is currency translation, not necessarily real business gains and foreign earnings don’t necessarily find their way back into the U.S. But the strength in the equity markets indicate that even a soft first quarter growth number might not do much to corral the stamped. That might have to wait until the employment report is released a week from Friday. One number to watch is the wage growth. The Philadelphia Fed released its non-manufacturing report today and the eye-opener was an enormous jump in the compensation component. Nearly forty percent of the respondents indicated that they had to increase wage and benefit costs. Labor cost inflation is finally starting to show its head, though I have said that a number of times before. Still, if the Fed is to raise rates in June or July, which I expect, it is going to need something to base that increase on. Rising wages would allow Chair Yellen to say that the labor market is clearly tight and that could be enough to announce another quarter-point move.