Introduction

A week filled with news was led by the Trump administration's efforts to raise tariffs on China and included buckling in web stocks on Facebook's enormous privacy beach. These events pushed out a steady-as-she-goes FOMC meeting and even a last minute extension of the debt limit. What we'll concentrate on this report is the week's economic data, headlined by a durable goods report that brings up the question of overheating and by a run of housing data topped by what could tentatively be described as a surge in home prices.

The economy

Significant strength is the verdict for the latest durable goods report and with it, significant growth is now the tangible outlook for this year's factory sector. The blue columns of the graph track monthly order totals for durable goods which came in at $247.7 billion in February for a jump of 3.1 percent compared with January. The green line tracks shipments of durables which totaled $249.7 billion for a 0.9 percent increase which is very sizable for this measure. The slopes in the graph are very convincing and show no suggestion of plateauing, confirming the enormous strength that has been posted over the last year by regional and private factory surveys. Unfilled orders, which have been showing less strength, improved with a 0.2 percent gain. Turning to inventories of durables, they rose a healthy 0.4 percent but, relative to shipments, they are not keeping pace as the inventory-to-shipments ratio fell one notch to 1.64. The dip in this reading points to the need for restocking which should be a special plus for factory payrolls.

Durables, which are discretionary in nature, get special attention since rising demand for these goods hints at rising demand for goods and services in general. And among durables, capital goods get the most attention as demand for these, from machinery to computers, points to increasing fixed investment as businesses put new equipment in place to meet what they expect will be rising demand ahead. And very convincing strength comes from core capital goods (nondefense ex-aircraft) where year-on-year growth, as tracked by the blue line of the graph, moved up nearly 2 percentage points to 8.0 percent. Monthly growth for this reading far surpassed top estimates with a 1.8 percent gain to $67.8 billion while related shipments, which are direct inputs into GDP business investment, rose an outsized 1.4 percent. Looking at product groups that contribute to the capital goods component, orders for primary metals surged a monthly 2.7 percent in a gain that may reflect, based on reports from regional and private surveys, rising prices for steel and aluminum. It's worth noting that these prices were already climbing ahead of possible steel and aluminum tarrifs announced earlier this month. Fabrication orders rose 0.8 percent in February with machinery, which is at the very heart of the capital-goods group, rising 1.6 percent.

Less strength, however, comes from the week's sales data out of the housing sector. Existing home sales did rise in February but followed lackluster sales in January and December. Home sales can be very volatile month-to-month -- especially during the weather effects of winter -- which puts the focus on 3-month averages as tracked in the graph. The blue line of existing sales, at an annualized rate of 4.890 million for February, has been flat for nearly 2 years in what has been a major disappointment for the nation's Realtors. New home sales, the green line, have been doing better but have run out of gas in recent months, slipping in February to a 3-month rate of 631,000 in what is not the best news for home builders. Lack of homes for sale has been perhaps the biggest reason for the lack of sales punch, especially in the resale market where supply is at a very thin 3.4 months relative to sales. And not helping matters is an ongoing rise in mortgage rates which are averaging about 4.70 percent for 30-year fixed loans which is up about 25 basis points from this time last year. Another factor holding down sales is an increase underway in prices, up a year-on-year 5.9 percent for existing homes to a median $241,000 and up 9.7 percent for new homes to a median $326,800.

Home prices, that is FHFA house price data, were perhaps the week's biggest surprise, shooting up to 259.28 in data for January for a far stronger-than-expected 0.8 percent monthly gain and a 7.3 percent year-on-year increase which is the best in 3-1/2 years. This index covers single-family transactions using data from Fannie Mae and Freddie Mac. Federal Reserve Chair Jerome Powell, in his first FOMC press conference at midweek, said there's currently no immediate risk of excess value in the housing market though FHFA's data do hint at acceleration. If there are questions of a possible price bubble they're centered in the western states with the Mountain region in this dataset at a year-on-year 10.0 percent and the Pacific region at 9.4 percent. And three other regions are 7 percent and over: South Atlantic up 7.8 percent, New England up 7.1 percent, and the East North Central at 7.0 percent. If it wasn't for the moderation underway in underlying sales, rising prices in the housing market would likely be considered a warning of unsustainable economic growth.

Also released in the week were early indications on March from Markit's manufacturing and services reports. Let's look first at manufacturing where the purchasing managers index came in at 55.7 which, as tracked in the blue line, extends a rising slope that parallels in direction the more closely watched ISM survey. Strength so far this month includes orders, production and also employment but price pressures, in an echo of the housing data, are perhaps the most telling result. A number of respondents are citing higher prices for metals and, according to the report, increased charges by suppliers amid strong demand for raw materials. At the same time, selling prices are rising at the strongest pace in just over 6-1/2 years.

Markit's service sample is reporting less strength, moderating to an index of 54.1 with this curve, though pointing higher, underperforming the ISM's non-manufacturing measure. Despite the slowing, orders and employment remain strong. And price pressures are also evident. Markit's results are likely to firm expectations for yet another very strong reading in the ISM manufacturing report though they may temper expectations for ISM's non-manufacturing data, both of which will be posted at the beginning of next month.

Whether we are talking about manufacturing or services or housing or even prices, all of these take a backseat to the nation's most important set of economic data: the monthly employment report. And the the report for March looks to be strong once again based on initial jobless claims which, in the sample week for the monthly report, remained low and very favorable. Initial claims in the March 17 week inched 3,000 higher to 229,000 with the 4-week average up slightly to 223,750. A comparison with the February 17 sample week of the prior employment report, as highlighted in the graph, shows no significant change. Continuing claims, in lagging data for the March 10 week, fell 57,000 to 1.828 million and a new multi-decade low. Employers are holding onto their employees like never before which is an indication that demand for labor is unusually strong.

Markets: Stocks move to the minus column

The stock market took a beating, opening the week with a 1.4 percent drop for the Dow on news that a third-party firm amassed Facebook data without user permission which was followed on Thursday by a 2.9 percent plunge after President Trump, who earlier this month announced tariffs on primary metals, moved to impose heavy tariffs specifically targeted at Chinese imports. Friday wasn't much better with the Dow dropping another 1.8 percent. The declines wipe away this year's year-to-date gains, at least for the Dow and S&P 500 which now show respective losses of 4.8 percent and 3.2 percent. But sellers didn't move their money into Treasuries, which were mostly steady in the week, though they may have been buying commodities based on the big 5.8 percent weekly gain for oil and 3.0 percent gain for gold. The dollar, however, wasn't in demand, falling 0.8 percent in the week for a year-to-date decline of 3.0 percent which points to increasing price acceleration for imports.

The bottom line

The week's durables data point to continued increases in factory payrolls, which have already been very impressive, and also to an increasing capital-goods contribution to business investment, specifically equipment investment that already represented about 1/4 of the fourth quarter's 2.5 percent GDP growth rate. Though inflation wasn't directly in the week's spotlight, factory strength does highlight the risk of rising pressures as perhaps do home prices. Yet we'll give Jerome Powell, who chaired his first FOMC press conference in the week, the last say, that increases underway in inflation are right now no more than moderate.

Week of March 26 to March 30

A week shortened by Good Friday begins with a look back at February from the national activity index on Monday. Factory indications for March open with Monday's Dallas Fed, where readings have been unusually robust, followed on Tuesday by the Richmond Fed which is coming off a very strong February. Consumer data will be one of the week's themes, starting with consumer confidence on Tuesday followed by consumer sentiment on Thursday both of which, boosted by this year's tax cut, have been accelerating. Thursday's major release will be personal income and consumer spending with income seen on the rise but not spending which is expected to be flat once again. The report's price data, based on February's consumer price report, are also expected to be flat. Housing will see updates from Case-Shiller on Tuesday, where home prices are expected to continue to rise, and pending home sales on Wednesday which have been unexpectedly weak in recent reports. Fourth-quarter GDP will get one final look on Wednesday while the outlook for first-quarter GDP will get major inputs from advance inventory data and especially from February advance goods trade, also on Wednesday.

Monday

National Activity Index for February

Consensus Forecast: 0.05

Consensus Range: 0.05 to 0.20

Strength in both mining and manufacturing production as well as strong job growth are likely to offset softness in consumption and housing to help February's national activity index stay positive at 0.05 vs January's 0.12

Dallas Fed General Activity Index for March

Consensus Forecast: 30.9

Consensus Range: 26.0 to 38.5 

Forecasters are looking for a little cooling in the Dallas Fed's general activity index, to 30.9 in March vs February's outsized 37.2. The result in February lifted Dallas over Philly as the very strongest of the regional manufacturing samples and hints of overheating were evident, including increases in unfilled orders, capacity utilization, and wages.

Tuesday

Case-Shiller, 20-City Unadjusted Index

Consensus Forecast, Year-on-Year Change: 6.2%

Consensus Range: 5.4% to 6.3%

Continuing strength is the call for Case-Shiller home prices where Econoday's consensus for the 20-city year-on-year rate is 6.2 percent. Cities out West are leading the price gains and are perhaps raising questions over bubbles in the region. High prices are in part reflecting low supply of available homes on the market.

Consumer Confidence Index for March

Consensus Forecast: 131.0

Consensus Range: 128.3 to 132.0

This year's tax cut has far offset any concerns over stock market volatility for the consumer confidence report. Income expectations have been solid and the assessment of the labor market strong. And another month of exceptional strength is the call for March, at a consensus 131.0 vs February's 130.8.

Richmond Fed Manufacturing Index for March

Consensus Forecast: 22

Consensus Range: 15 to 28

Easing acceleration is Econoday's consensus for the Richmond Fed manufacturing index, at a consensus 22 for March vs February's near record at 28. Capacity stress in this sample is a question given February's rise in capacity utilization together with sizable pressures for input costs and selling prices.

Wednesday

Real GDP: 4th Quarter, 3rd Estimate, Annualized Rate

Consensus Forecast: 2.7%

Consensus Range: 2.4% to 3.0%

Real Consumer Spending, Annualized Rate

Consensus Forecast: 3.8%

Consensus Range: 3.7% to 4.1%

GDP Price Index

Consensus Forecast: 2.3%

Consensus Range: 1.6% to 2.3%

Boosted by smaller drag from inventories, the third estimate for fourth-quarter GDP is expected to come in at a 2.7 percent annualized rate vs 2.5 percent in the second estimate. The consumer was the driver in the fourth quarter and no change is expected, with consumer spending seen at a 3.8 percent rate. The GDP price index is seen unchanged at a 2.3 percent rate.

International Trade In Goods for February

Consensus Forecast, Month-to-Month Change: -$74.0 billion

Consensus Range: -$76.4 to -$73.0 billion

The goods deficit in February is expected to narrow to a consensus $74.0 vs $75.3 billion in December (revised from an initial $74.4 billion). Exports weakened in January, including declines for capital goods and industrial supplies to open the first-quarter trade balance on a negative note. Also released with the report will be advance February data for both wholesale inventories and retail inventories which, like net exports, will also be inputs into first-quarter GDP.

Advance Wholesale Inventories for February

Consensus Forecast, Month-to-Month Change: 0.5%

Consensus Range: 0.3% to 0.7%

February wholesale trade inventories are expected to rise 0.5 percent following strong builds of 0.8 and 0.7 percent in the prior two months.

Pending Home Sales Index for February

Consensus Forecast, Month-to-Month Change: 2.7%

Consensus Range: 0.5% to 6.0%

Pending home sales are expected to rebound 2.7 percent in February after posting a very sharp 4.7 percent decline in January which did not, however, result in weakness for final sales of existing homes which instead posted a solid February gain. Note that the consensus range, from 0.5 percent to 6.0 percent, is very wide.

Thursday

Initial Jobless Claims for March 24 week

Consensus Forecast: 228,000

Consensus Range: 220,000 to 230,000

Initial claims are expected to come in at 228,000 in the March 24 week vs 229,000 in the prior week. Claims have been low and consistent with minimal layoffs and strong demand for labor.

Personal Income for February

Consensus Forecast, Month-to-Month Change: 0.4%

Consensus Range: 0.3% to 0.9%

Consumer Spending

Consensus Forecast, Month-to-Month Change: 0.2%

Consensus Range: -0.1% to 0.4%

PCE Price Index

Consensus Forecast, Month-to-Month Change: 0.2%

Consensus Range: 0.1% to 0.2%

PCE Price Index

Consensus Forecast, Year-on-Year Change: 1.7%

Consensus Range: 1.7% to 1.7%

Core PCE Price Index

Consensus Forecast, Month-to-Month Change: 0.2%

Consensus Range: 0.1% to 0.2%

Core PCE Price Index

Consensus Forecast, Year-on-Year Change: 1.5%

Consensus Range: 1.5% to 1.6%

Income proved steady and firm in January but not spending which was soft and which will be held back in February by the month's decline in retail sales. Personal income is seen rising 0.4 percent in February while consumer spending, getting a likely boost from spending on services, is expected to come in at a gain of 0.2 percent. Price data look to remain subdued given the modest results of February's consumer price report. The PCE price index is expected to rise 0.2 percent in February for a year-on-year rate of 1.7 percent with the very closely watched core PCE price index, which excludes both food and energy, also seen up 0.2 percent for a yearly 1.5 percent which would be unchanged from January.

Chicago PMI for March

Consensus Forecast: 63.2

Consensus Range: 60.0 to 65.0

Forecasters are calling for renewed acceleration in the Chicago PMI report, to a consensus 63.2 in March vs February' s 61.9. February's report was filled with 6-month lows but lows that still pointed to very strong rates of growth.

Consumer Sentiment Index, Final March

Consensus Forecast: 102.0

Consensus Range: 101.0 to 102.0

Consensus for the final March reading of the consumer sentiment index is 102.0 which would be unchanged from the month's preliminary reading. General confidence among lower income respondents helped drive gains in the preliminary report where strength was centered in the current conditions component, offsetting a decline in expectations which were pulled lower by emerging income doubts among higher income respondents. Inflation expectations were a highlight of the preliminary report, rising 2 tenths for the year-ahead outlook to a 4-year high of 2.9 percent.