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Bulls are in charge, and not just in the markets

The calendar was crowded last week with reports on everything from retail sales and housing starts to inflation and interest rates, but two reports released Friday were among the best snapshots so far of the economy two months into the new Trump administration.

The calendar was crowded last week with reports on everything from retail sales and housing starts to inflation and interest rates, but two reports released Friday were among the best snapshots so far of the economy two months into the new Trump administration.

The Conference Board said its Leading Economic Index rose 0.6 percent in February to 126.2, its highest level in more than a decade, and the mid-month reading of the University of Michigan’s Consumer Sentiment Index rose to 97.6 from 96.3 at the end of February despite a continuing partisan divide between optimistic Republicans and pessimistic Democrats.

Taken together, the reports portray an economy that is likely on the rise for the best reasons — Americans are confident and are taking the kinds of actions that will advance growth. The bull market in stocks is now eight years old, and these days even the average citizen is a full participant.

“The overall level of consumer sentiment remained quite favorable in early March due to renewed strength in current economic conditions, as well as the extraordinary influence of partisanship on economic prospects,” Richard Curtin, chief economist of the University of Michigan’s Surveys of Consumers, said in a statement. “The Current Economic Conditions component reached its highest level since 2000, largely due to improved personal finances.”

The nation’s political divisions were evident in the portion of the university’s survey that measured future economic prospects.

“Among Democrats, the Expectations Index at 55.3 signaled that a deep recession was imminent, while among Republicans the Index at 122.4 indicated a new era of robust economic growth was ahead,” Curtin said. “Interestingly, those who self-identified as independents had an Expectations Index of 88.3, which was nearly equal to the midpoint of the partisan difference.”

Curtin said the extreme views had not moderated from those the survey identified the previous month.

“Overall, the sentiment data has been characterized by rising optimism, as well as by rising uncertainty due to the partisan divide,” Curtin said. “Optimism promotes discretionary spending, and uncertainty makes consumers more cautious spenders. This combination will result in uneven spending gains over time and across products.”

The Conference Board said its Leading Economic Index has risen for six consecutive months. Typically three months in a row of increases or decreases mark a turning point for the economy.

“Widespread gains across a majority of the leading indicators points to an improving economic outlook for 2017, although GDP growth is likely to remain moderate,” Ataman Ozyildirim, director of business cycles and growth research at The Conference Board, said in a statement. “Only housing permits contributed negatively to the LEI in February, reversing gains over the previous two months.”

The previous day, the Commerce Department said housing starts rose 3 percent in February to a seasonally adjusted annual rate of 1.29 million, the second-highest level since 2007.

MarketWatch said the strong report was a reflection of pent-up demand. Construction of single-family houses rose 6.5 percent.

“Home buyers should be pleased with [Thursday’s] new construction numbers, as both permits and completions were up in February," Ralph McLaughlin, chief economist at Trulia, the online residential real estate site, said in a research note quoted by USA Today. "This means a healthy dose of new homes will be available this spring in an otherwise inventory-constrained market.”

One point of concern about the housing market is that, as Ozyildirim said, the number of new housing permits fell. They were down 6.2 percent for February to an annual rate of 1.21 million units. USA Today cited higher mortgage costs, rising property values and a shortage of lots as areas of concern for home builders.

Separately, the Commerce Department said retail sales growth slowed in February, rising just 0.1 percent. The gain was the weakest since August. However, Reuters reported that the revised 0.6 percent advance in January put growth at 5.7 percent for the 12-month period that ended in February.

One possible reason for the February slowdown is that the IRS has delayed issuing tax refunds this year in an effort to combat fraud.

"The later-than-usual processing of income tax refunds may have hampered consumer spending. However, the IRS has now caught up to last year's pace, and so spending could get a bump up in March," Gus Faucher, deputy chief economist at PNC Financial in Pittsburgh, told Reuters.

The Labor Department said the cost of living continued to climb in February, though moderately, rising 0.1 percent from the previous month. Core CPI, which strips out volatile food and energy costs, increased by 0.2 percent last month. Prices of new new cars and trucks fell, and clothing prices moderated after surging in January.

When the Federal Reserve decided last week — on the day the latest inflation and retail sales data were released — to raise the federal funds rate for only the third time since the Great Recession, the central bank noted that the economy is growing at “a moderate pace” and chairman Janet Yellen made a point of saying at her press conference that the Fed has not changed its outlook on the economy.

“The basis for today’s decision is simply our assessment of the progress of the economy,” she said. “And it’s been doing nicely.”

The New York Times said people who are carrying credit card debt probably will see an immediate increase of about a quarter percentage point in their interest rates. The effect on longer-term loans was seen as less direct, but the newspaper noted that the average rate on a 30-year mortgage has risen by half a percentage point during the past year.

This week, the economic calendar turns the page to focus on the housing market, with February reports on existing-home sales on Wednesday and new-home sales on Thursday.

MarketWatch said economists’ median forecast is that home resales will have slowed from the previous month and that new-home sales will have accelerated.

A healthy housing market is key to an improving economy, and the new numbers are likely to show that its vital signs remain strong.



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