Every Friday, Brian Jacobsen provides perspective on key events and topics of the current week and his thoughts about what the week ahead may hold. Here’s his report for the week of March 13–19, 2021.
The week that was
- The Federal Open Market Committee (FOMC) kept its stance of monetary policy unchanged and only made a few tweaks to its policy statement. It acknowledged that economic activity seems to be reaccelerating, but those sectors of the economy that were most severely hit by the pandemic continue to be left behind.
- Inflation continues to run below 2.0%, but the FOMC projects inflation to run at 2.4% for 2021 before declining to 2.0% in 2022.
- Back in December, the FOMC thought economic growth would be 4.2% in 2021, but now it’s projecting 6.5% growth. Over the long run, the FOMC thinks growth will simmer down to a very modest 1.8% growth rate.
- The FOMC’s projections have the unemployment rate falling to 4.5% by the end of 2021. Since the FOMC wants the economy to “run hot,” the unemployment rate is projected to fall to 3.5% by the end of 2023, which is lower than what the Federal Reserve (Fed) thinks the long-run unemployment is (4.0%).
- The Fed still thinks the federal funds rate will get to 2.5%, but that’s way in the future. The Fed’s projections show the federal funds rate unchanged at about 0.125% through 2021, 2022, and 2023. Of the 18 Fed officials, three think the Fed could hike once in 2022 while one official thinks the Fed could hike twice.
- A new section of the “Summary of Economic Projections” includes Fed officials’ assessment of the risks to the upside and downside for their various projections. More officials thought the risks were to the upside for both growth and inflation compared with December 2020, when they thought the risks were more to the downside.
- China’s retail sales rose 33.8% for the January and February 2021 period compared with the same period in 2020. Industrial production increased 35.1%. Both numbers beat expectations. These are examples of the distortions that can occur with year-over-year numbers given that last February was when China imposed countrywide lockdowns. Compared with January 2021, retail sales rose 0.56% and industrial production rose 0.69%.
- U.S. retail sales in February fell 3.0% month over month, but that was after a huge 7.6% jump in January. Bad weather depressed spending in February, especially in Texas. Stimulus checks that went out in January likely shifted some of the spending that would have happened on bigger-ticket and discretionary items from February into January. While the February drop in sales looked bad, it was only superficially bad.
- Bad weather showed up in February’s housing numbers. Housing starts fell 10.3% month over month. Lumber prices have been rising, which is pushing up the price of construction.
- The IRS said the tax filing deadline will be moved from April 15 to mid-May.
- In September, Germany will hold federal elections. This past weekend, there were some regional elections in which Angela Merkel’s Christian Democratic Union (CDU) party declined in popularity. The German Green Party gained in popularity in the elections in Baden-Württemberg and Rhineland-Palatinate. Merkel is stepping down as chancellor, and she has already stepped down as head of the CDU. The CDU is still the most popular party nationally.
The week to come
- There’s lots of housing data coming out. On Monday, we get existing home sales, while on Tuesday, we get building permits and new-home sales numbers.
- On Wednesday, preliminary readings for March’s Information Handling Services (IHS) Markit Flash U.S. Composite Purchasing Managers’ Index (PMI) Output Index are released.
- On Friday, we get February’s U.S. personal consumption and income numbers. As part of that release, there’s the Personal Consumption Expenditures (PCE) Index, which is used for calculating inflation.
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