Continuing a trend that has formed over the better part of a month, a series of strong economic data releases this week reinforced the budding strength of the economy as it thaws from its pandemic-driven freeze. As more vaccines are administered and fiscal stimulus works its way through the economy, consumers are showing an increased eagerness to spend and demonstrating more confidence in the economy’s future. Sales at U.S. retail businesses grew 9.8% in March from February – the second-largest monthly jump ever recorded. The encouraging report was, admittedly, heavily assisted by $1,400 federal stimulus checks received by many consumers in March, but the breadth of spending was still impressive. Bars and restaurants, clothing stores and sporting goods retailers all saw double-digit monthly increases in sales receipts. And a separate reading on consumer sentiment rose to a one-year high in March. In addition to consumer behavior, heavy industry also gained in March. National industrial production – a measure of output at factories, mines and utilities – ticked up 1.4% in March from February, reversing a 2.6% monthly decline in February.
After stalling in February in large part because of poor winter weather, home construction activity kicked back into high gear in March as builders proved themselves resilient despite persistent constraints posed by rising costs and regulatory challenges. As conditions improved, builders were quick to ramp up production and regain the form that has been powering activity at a rate not seen since prior to the Great Recession. Builder confidence improved in March from February and remains near an all-time high. And home starts reached their highest levels since 2006, even as the price of building materials – particularly lumber and steel – continue to spike: Lumber prices have risen in the last 12 months by more than in any 12-month period since 1947. A steady stream of buyers and a persistent shortage of available for-sale homes continue to provide justification for new projects even as cost uncertainty mounts. But there is no avoiding the fact that prices of key materials are rising at their fastest rates in decades, and availability of these materials is often limited due to pandemic-driven supply chain disruptions. A continuation of these conditions could eventually force builders to throttle back, but for now, the March home construction report offered nothing but good news for builders and buyers alike.
An improved economic outlook helped push Treasury yields – which generally dictate mortgage rates – strongly upward to begin the year, making the days of all-time-low mortgage rates a thing of the past. But as encouraging economic data continue to mount, the rise in mortgage rates has stalled and, in recent days, reversed. After touching their highest level in a year at the end of March, mortgage rates have fallen sharply in the last two weeks and are now back to where they were in February. Pandemic-related developments are likely behind this changed course. Rising COVID-19 cases across the country and this week’s pause on the Johnson & Johnson vaccine introduced fresh uncertainty in the eyes of investors. The outlook for mortgage rates is likely still upward, barring any additional setbacks in the nation’s recovery from the pandemic.
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