This morning brought one report of note on the U.S. economy. At 8:30 A.M. (EDT), the Department of Commerce reported that preliminary durable goods orders were up 0.9% in February. (Durable goods are products that are expected to last for three years or more and are used repeatedly over time.) That figure was surprisingly positive, and the report included no revision to the strong January gain of 3.2%. This was hard (actual) economic data and countered some of the concerns about recent dour soft (i.e., sentiment) data. Wall Street has been worried that the tariffs from the Trump Administration on goods produced overseas will lead to higher prices stateside and a drop in spending on discretionary items. The report seems to contradict this notion, but it will be interesting to see if the increase in durable goods orders was the result of some ordering in advance of the implementation of the tariffs.
The equity futures, which were mixed heading into the economic data, still don’t show a strong direction as we write this report. Treasury market yields, which have moved higher this week on the economic and tariff news, again inched up this morning. The major equity averages managed to produce minimal gains yesterday, extending the market’s rally for a third-straight day. In general, less hawkish monetary commentary from Federal Reserve Chairman Jerome Powell last week, the avoidance of a government shutdown on Capitol Hill, and reports that next week’s scheduled reciprocal tariffs from the Trump Administration may be less severe than originally anticipated are giving a boost to stocks. The trade policy news, though, remains fluid and new developments on that front can change the direction of trading on a dime.
The topics of consumer spending and inflation will be the focus of Wall Street later this week when we get the latest personal income and spending report from the Labor Department on Friday. That release will include the Personal Consumption Expenditures (PCE) Price Index, which is the gauge of inflation most closely tracked by the Federal Reserve. The consensus forecast is that the PCE and the core PCE, which excludes the food and energy components, will show little progress on the inflation front, on both a month-to-month and one-year basis. Given the focus on if and when the central bank will again cut the federal funds rate, this data could play a big part in how the market finishes this week.
Last week, the Federal Open Market Committee kept the federal funds rate in the range of 4.25% to 4.50%, but the “dot plot” and commentary from Fed Chairman Jerome Powell left the door open for two interest-rate cuts later this year. Over the next few days, we will also get monetary policy commentary from a number of Federal Reserve Presidents, including Minneapolis Fed President Neel Kashkari and St. Louis Fed President Alberto Musalem later today.
Yesterday’s news on the economy was mostly disappointing. Although the Commerce Department report on new home sales was in line with the consensus forecast, the annualized total of 676,000 was still uninspiring as it came during a month when mortgage rates pulled back a bit. This coincided with disappointing quarterly results from KB Home (KBH) and a subdued near-term outlook. The housing stocks have been on a sharp decline calendar year to date, as most of the builders have delivered desultory operating results, and investors are worried about the impact of stubbornly high mortgage rates and higher raw materials costs from tariffs, on residential construction activity. –William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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