Introduction

Like Federal Reserve efforts to remove stimulus, the economy is not moving forward much. Housing, literally like a tired albatross, just can't get up enough steam to get in the air. And the factory sector, despite isolated signs of strength, had in fact what was a terrible February.

The Economy

The unendurables

The most famous of all indicators for volatility is, of course, the durables goods report which continues to build on its reputation. Orders for durable goods fell a sharp 2.8 percent. Ex-transportation, which excludes the up-and-down swings of aircraft orders, was down 1.0 percent — a sizable decline for this reading. And capital goods readings, which offer indications on business investment, were once again in the minus column, down 1.8 percent for core orders while core shipments, which are an input into GDP, fell 1.1 percent. Orders for capital goods have been dead flat, at a year-on-year minus 0.1 percent to be exact, which is even worse than total orders which are at least in the plus column at 1.8 percent. The graph tracks monthly dollar totals for total durable orders (columns) and the subset for core capital goods (blue line).

Weakness in the durables report includes a very steep 0.9 percent decline for total shipments which is an unfortunate surprise given the 0.2 percent uptick for the manufacturing component of the industrial production report. Unfilled orders were also very weak, down 0.5 percent in the month and down 1.6 on the year in readings that are not promising at all for manufacturing payrolls which have been dead flat for the last year. Inventories, at minus 0.3 percent, are coming down but not fast enough with the inventory-to-shipments ratio up one notch to 1.65. Unfortunately, the weakness in this report may be more than just a one-month disturbance as it extends, outside of a strong January that more and more looks like an outlier, a long trend of weakness tied to export troubles and major declines for mining and energy equipment. Early signs this month from the Empire State, Philly and Richmond Feds have been very upbeat but have been offset by continued weakness in the Kansas City Fed and the manufacturing PMI reports. It's still too early to say whether the decline in the dollar is giving any relief to the manufacturing sector.

Up and down and going nowhere

The jobs market is solid and mortgage rates are low with 30-year loans below 4 percent. But housing hasn't been showing much life at all this year. First we'll look at the week's good news and that was new home sales which rose a solid 2.0 percent in February to an annualized rate of 512,000. But February got a big boost from a 39 percent surge in sales out West. Year-on-year, sales in the West are up 10.2 percent which far exceeds the other three, at plus 1.9 percent for the Midwest, down 3.8 percent for the Northeast and down 14.3 percent for the South which ominously is by far the largest region for housing. The question of course is: How long can one region hold up the nation's sales' New home sales data are based on small samples and are difficult to read on a month-by-month basis, but the trend, as it is for existing home sales, is no better than flat at the very best.

Now the bad news. Existing home sales fell a very steep 7.1 percent in February to a 5.080 million annualized rate for the second lowest showing since February last year. Unfortunately, what makes the report very convincing is that details are uniformly weak. Single-family sales fell 7.2 percent to a 4.510 million rate with condos down 6.6 percent to 570,000. All regions showed declines in the month and no more than low single-digit gains on the year. Prices are soft and are not drawing in new sellers as inventory remains scarce. The weakness in existing homes sales, described as "meaningful" by the usually upbeat National Association of Realtors, substantially offsets February's improvement on the new home side. Housing, if it plans to live up to its 2016 billing, needs a very good showing during its bread-and-butter season, the Spring.

The consumer is on our side

The third and final estimate, at least for now, of real fourth-quarter GDP proved upbeat, at an annualized 1.4 percent. The good news in the report is a further strengthening in personal consumption expenditures, at a plus 2.4 percent annualized rate and a 4 tenths increase from the prior estimate. Core retail sales so far this quarter have been solid but the pace of household spending for the first quarter will become more evident with the Monday release of personal income and consumption data, specifically consumer spending on services. Turning back to the fourth quarter, residential fixed investment gave a 10.1 percent boost to the quarter which, based on new home sales at least, is likely to slow this quarter. Non-residential investment pulled GDP down 2.1 percent and core capital goods readings are pointing to further contraction. Net exports, which may be getting some relief this quarter from the lower dollar, cut 0.14 percent off from the fourth quarter, an improvement from minus 0.25 and minus 0.47 in the prior two estimates.

The economy has been improving but not dramatically this cycle, especially since the 2014 collapse in oil prices. The national activity index, which is a broad composite of 85 individual indicators, has been very subdued, holding under the zero line since September last year. Zero here (the red line in the graph) is the economy's historic rate of growth based on this giant batch of indicators. February proved a very weak month for the index as the warm weather drop in utility output pulled down its production component. But mining output also pulled the index down in a reminder that low oil as well as low commodity prices are still pulling the economy lower. The employment component does remain a plus but not personal consumption & housing which remains in the negative column.

The best news in the week, as it usually is in fact, comes from the unemployment claims report where continuing claims fell 39,000 in the March 12th week to 2.179 million. The March 12th week is also the sample week for the monthly employment report and a February to March sample-week to sample-week comparison shows significant improvement, down 34,000 to 2.207 million. The same comparison with initial claims shows little change and, taken together, they point to another very healthy employment report, this time for March. Initial claims are released one week ahead of continuing claims and a look at the March 19th data shows little change at 265,000 which, for the record book, is the 55th straight reading under 300,000! This is the longest streak since 1973 when the workforce was by comparison much smaller.

Markets: No fear from terror

Financial markets showed very little reaction to the week's bombings in Brussels. Initial demand for the safety of Treasuries made for only a brief dip in rates which ended the week several basis points higher, at 0.89 percent for the 2-year and 1.90 percent for the 10-year. Stocks slipped in the holiday-shortened week but only slightly with the Dow down 0.5 percent to 17,515 and still up 0.5 percent on the year. Fed speakers were out in force in the week, warning of wage-driven inflation and all saying a rate hike at either the April or June meetings is definitely in play. But the chorus follows the decidedly dovish tone of the FOMC meeting in the prior week. Who knows' Talk is cheap and this may be a case of watch what they do, not what they say.

The Bottom Line

With the factory sector still behind and with housing barely pulling its share, the greatest share once again falls to the consumer. Household spending held up respectably well in the fourth quarter and will hopefully, given the strength in the jobs market, hold up as well in the first quarter.

Week of March 28 to April 1

One of the heaviest weeks ever starts off on Monday with no less a headliner than personal income & spending where the PCE core price index is expected to show a little life and perhaps move closer to the Federal Reserve's 2 percent policy line. Existing home sales have been very soft but pending home sales are expected to show a rebound on Monday. Other housing data in the week include Case-Shiller home prices, which are expected to show traction on Tuesday, and construction spending on Friday which could show a badly needed bounce for the residential component. Friday opens with the employment report where the Econoday consensus is calling for another solid rise, up 210,000 for nonfarm payrolls. The ISM and consumer sentiment follow on Friday with the former expected to show strength and the latter expected to come in flat. If the PCE core shows lift and the employment remains strong, talk of an April FOMC rate hike would definitely build.

Monday

International Trade In Goods for February

Consensus Forecast, Month-to-Month Change: -$62.5 billion

Consensus Range: -$64.4 to -$60.0 billion

The international trade in goods is expected to widen slightly in February to $62.5 billion vs January's $63.7 billion (revised from $62.2 billion). This year's decrease in the dollar, amounting to several percentage points, should begin to help exports which, however, proved very weak in January. Exports of capital goods have been especially weak as have imports of capital goods, together pointing to lack of global business investment. Imports of consumer goods have been flat and pointing to slowing in domestic household demand.

Personal Income for February

Consensus Forecast, Month-to-Month Change: +0.1%

Consensus Range: -0.1% to +0.3%

Personal Spending

Consensus Forecast: +0.1%

Consensus Range: -0.2% to +0.3%

PCE Price Index

Consensus Forecast: -0.1%

Consensus Range: -0.1% to 0.0%

Core PCE Price Index

Consensus Forecast: +0.2%

Consensus Range: +0.2% to +0.2%

The Federal Reserve's 2 percent line is centered on the core PCE price index which is expected, helped by another gain for core consumer prices, to rise a monthly 0.2 percent in February. The gain could put the year-on-year rate, at plus 1.7 percent in January, within striking distance of the Fed's target. But wages eased in the employment report for February and do not point to much strength for personal income which is expected to rise only 0.1 percent. Personal spending, despite a gain for core retail sales, isn't expected to show much life either in February, at a consensus plus 0.1 percent. A weak showing for personal spending, in contrast to a rise in the core price index, would not raise chances for an April FOMC hike.

Pending Home Sales for February

Consensus Forecast: +1.5%

Consensus Range: +0.5% to +2.0%

Existing home sales have been very soft this year, as correctly indicated in advance by weak readings for pending home sales. This report for February is expected to rise 1.5 percent boosted by an easy comparison with January's unexpected 2.5 percent drop. Home-price appreciation has been no better than moderate and has not been enough to attract supply in the market which has remained very thin in what is another factor keeping sales down.

Tuesday

Case-Shiller 20-City Index for January

Consensus Forecast, Adj. index, Month-to-Month Change: +0.7%

Consensus Range: +0.6% to +1.0%

Case-Shiller, 20-City Unadjusted Index

Consensus Forecast, Unadj. index, Year-on-Year Change: +5.8%

Consensus Range: +5.7% to +6.3%

Case-Shiller price data are expected to track FHFA data and move sharply higher in February, up a consensus 0.7 percent for the Case-Shiller adjusted 20-city index. But Case-Shiller's year-on-year rate is expected to edge only 1 tenth higher to 5.8 percent which would be 2 tenths short of FHFA which is back at 6.0 percent, a solid rate but well short of outside expectations for 10 percent appreciation this year. Home-price appreciation, given weakness in wages, could be key to household wealth this year.

Consumer Confidence Index for March

Consensus Forecast: 94.0

Consensus Range: 91.9 to 96.0

The consumer confidence index is expected to bounce nearly 2 points higher in March to 94.0, a respectable level but down from brief peaks over 100 last year. Job and income expectations have been holding up well in this report though buying plans fell sharply in the February report. Inflation expectations, which may go up based on this month's rise in pump prices, are a chief concern right now for Federal Reserve policy makers.

Wednesday

ADP, Private Payrolls for March

Consensus Forecast: 203,000

Consensus Range: 165,000 to 225,000

The ADP employment report doesn't always match the government's employment report but it has been accurate the last several reports, signaling convincing acceleration in December, slowing in January, then strength again in February. Forecasters see Friday's employment report for February showing strength and likewise see ADP showing strength as well, at a consensus 203,000 vs ADP's private payroll count of 214,000 in February.

Thursday

Initial Jobless Claims for March 26 Week

Consensus Forecast: 266,000

Consensus Range: 260,000 to 275,000

Initial jobless claims are holding steady near record lows and are pointing to another month of solid employment growth for March. The Econoday consensus for the March 26th week is 266,000 which would be an increase of only 3,000 from the March 19th week. Continuing claims, like initial claims, have also been holding at historic lows.

Chicago PMI for March

Consensus Forecast: 50.3

Consensus Range: 49.0 to 53.2

The Chicago PMI is expected to rebound to 50.3 following February's 8-point plunge to a sub-50 contractionary level of 47.6. The only good news in the February report was a bounce back over 50 for new orders. This report tracks the Chicago economy in general and is subject to extreme volatility. In fact, Chicago has fallen outside of Econoday's consensus range for the last three months in a row.

Friday

­­­Total Vehicle Sales for March

Consensus Forecast, Annual Rate: 17.6 million

Consensus Range: 17.3 to 18.0 million

Motor vehicle sales have opened the year very solidly, moving incrementally higher to the 17.5 million range with March expected to come in at 17.6 million. Strength in sales reflects strength in domestic consumer demand, strength that in turn has held up vehicle production and with it the factory sector in general.

Nonfarm Payrolls for February

Consensus Forecast: 210,000

Consensus Range: 175,000 to 241,000

Private Payrolls 

Consensus Forecast: 200,000

Consensus Range: 175,000 to 237,000

Unemployment Rate

Consensus Forecast: 4.9%

Consensus Range: 4.8% to 5.0%

Average Hourly Earnings

Consensus Forecast: +0.2%

Consensus Range: +0.2% to +0.3%

Average Workweek

Consensus Forecast: 34.5 hours

Consensus Range: 34.4 to 34.5 hours

Nonfarm payrolls are expected to extend their very solid trend with a 210,000 rise in March that would follow an even stronger 242,000 rise in February. The unemployment rate is expected to hold at 4.9 percent while average hourly earnings are expected to rise a steady 0.2 percent. A 0.3 percent rise for earnings, not to mention stronger-than-expected payroll growth or a tick lower in the unemployment rate, could raise talk of an April FOMC rate hike.

Manufacturing PMI, Final for March

Consensus Forecast: 51.7

Consensus Range: 51.5 to 51.9

The manufacturing PMI final is expected to edge 3 tenths higher from the flash reading to what would nevertheless be a weak 51.7. Unlike actual government data on the factory sector, this report never showed contraction last year though it has been slowing so far this year. Declines for energy equipment and for exports have been specifically cited as major negatives in this report. The pace of production is at multi-year lows and selling prices posted one of their rare drops in the flash report.

ISM Manufacturing Index for February

Consensus Forecast: 50.5

Consensus Range: 48.5 to 54.0

The ISM manufacturing index is expected to post a modest 1.0 point gain and move back over the 50 divide for the first time since September. New orders have been holding over 50 so far this year with a pair of 51.5 readings in January and February. Otherwise, backlogs and exports have been in contraction as has employment which is at its lowest point since 2009. But a rise over 50 for the headline index, which however isn't guaranteed, would definitely give a lift to the manufacturing outlook.

Construction Spending for February

Consensus Forecast, M/M Chg: +0.2% 

Consensus Range: -0.5% to +0.7%

Construction spending is expected to edge 0.2 percent higher in February in a gain that will hopefully include strength for the residential component which in January opened the year unchanged. It was a burst of spending on highway & streets that fed January's overall gain of 1.5 percent.

Consumer Sentiment, Final for March

Consensus Forecast: 90.9

Consensus Range: 90.5 to 92.3

The Econoday consensus is not pointing to a month-end rebound for the consumer sentiment index which in the preliminary report for March fell back nearly 2 points to 90.0 for the least optimistic reading since October. Inflation expectations in the mid-month report rebounded, getting a boost from this month's rise in pump prices. Readings on consumer spirits have remained solid but have been coming down this year.