The problem with measuring an economy is this:
It takes time to gather the data, then more time to gather more data to see if the first round is solid and then even more time to figure out what it all means.
The conventional wisdom about the economy is that it’s solid. That’s what Federal Reserve Chairman Jerome Powell believes, although President Trump may disagree.
Employment is strong. The national unemployment rate has been below 5% since September 2021. The travel business is very strong. Even if consumers are worried, they have not stopped buying.
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There have not been big layoffs. (Yet. The Administration wants to deep-six thousands of workers from the federal payrolls, and tech land is trimming job counts.)
Price inflation may not be as low as the Federal Reserve or the new Trump administration would like.
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You will see the Fed’s view of economic conditions on Wednesday when it releases the minutes from its last meeting in January.
The part that always gets the most attention is toward the back of the report (available on the Fed’s website at 2 p.m. ET). That’s when the minutes describe opinions on how the Federal Open Market Committee members discuss interest-rate policy. As everyone knows, the Fed did not change its key interest rate, which is at 4.25% to 4.5%.
Aside from the Fed, there are forces pressing against the conventional wisdom, and some of these will be on display with this week’s economic reports.
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Housing is a sticking point
The first signal on this will come Tuesday with the National Association of Home Builders’ Home Builder Confidence Index.
A reading under 50 is a sign of less confidence. It was 47 in January, up a point from December. Sales conditions won a grade of 51, but traffic of prospective buyers was at 33. Sales expectations fell from 66 to 60. Not bad, but mortgage rates were cited as a huge impediment.
The question comes up again Wednesday when the Commerce Department issues its January report on housing starts and building permits.
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There was hope in December’s report because single-family starts were up 3.3% and permits were up 1.6% from November. Neither number was much above 1 million units, and those are down about 10% from 2021 and 40% from 2005.
Another big report comes Friday when the National Association of Realtors reports on existing home sales for January. The last report, in January, put the sales rate at 4.2 million units.
It might be a bit bigger in January.
Home sales do affect the economy because buyers typically spend a sizable amount of money after the purchase. And the slowdown since 2021 has taken its toll on home builders. The iShares U.S. Home Construction exchange-traded fund (ITB) has fallen 20% since peaking in October.
Housing has been deviled by three seemingly intractable problems:
- New supply isn’t getting built fast enough. Local zoning and permitting rules are a big problem.
- Home prices are rising much faster than incomes.
- Mortgage rates are still relatively high. The national rate on a 30-year loan seems to be a bit under 7%, and Greg McBride of Bankrate thinks it is likely to stay there. During the pandemic, mortgage rates fell under 5%, and many owners who have those loans can’t afford to move.
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Leading economic indicators offer a snapshot of what’s ahead
The Conference Board’s monthly report on leading indicators is one of the few economic reports that dares to look forward.
The current report will come out Thursday morning and will offer a hint about how President Trump’s tariff proposals are playing in real time. The last report, released on Jan. 22, suggested consumer confidence was waning.
That worry was also reflected in the University of Michigan’s first consumer sentiment report for February. An updated version of the report is due Friday as well.
In the first report, researchers said, all of the components in the index had deteriorated “led by a 12% slide in buying conditions for durables, in part due to a perception that it may be too late to avoid the negative impact of tariff policy.”
Meanwhile, Standard & Poor’s will release purchasing managers reports for manufacturing and services on Friday. These offer a view of how businesses are looking ahead to what their organizations might need. And, yes, the question of tariffs is expected to be front and center.
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