Last week's economic landscape was marked by pockets of resilience amid growing concerns and heightened uncertainty. Retail sales offered a mixed bag, with overall growth falling short of expectations but key components suggesting continued consumer spending. Additionally, the housing sector displayed conflicting signals, as rising home sales contrasted with declining builder confidence and persistent affordability challenges.
The Federal Reserve's latest meeting, while uneventful in terms of policy changes, reinforced the central bank's 'wait-and-see' approach, as they seek greater clarity on the economy's trajectory before making any decisive moves. Meanwhile, the stock market see-sawed through the week as investors digested all of the incoming data, ultimately snapping its four-week losing streak.
The housing indicators discussed in this article could impact home builders and residential real-estate ETFs such as Invesco Dynamic Building & Construction ETF (PKB), iShares U.S. Home Construction ETF (ITB), SPDR S&P Homebuilders ETF (XHB), and iShares Residential and Multisector Real Estate ETF (REZ).
Retail Sales
February's retail sales presented a mixed picture. While overall sales increased by a modest 0.2%, falling short of the anticipated 0.6% growth and representing a partial recovery from January's revised 1.2% decline, underlying data suggests consumer spending remains resilient. Core retail sales, excluding autos, met expectations with a 0.3% rise, and control purchases — a crucial GDP input — surged by 1.0%, beating expectations of 0.2% growth.
The marginal rebound last month was driven by increased sales at online stores (2.4%) and health and personal care stores (1.7%). However, there was a notable pullback on discretionary spending. Sales at restaurants and bars plummeted 1.5%, the sharpest drop in over a year. Gas station sales also declined by 1.0%, likely reflecting lower fuel prices.
These figures offer a degree of reassurance that the economy is not contracting. Yet they also highlight consumer caution amidst heightened economic uncertainty. Declining consumer sentiment and potential inflationary pressures from tariffs and other policies could pose significant headwinds for future retail sales.
Retail sales could impact the SPDR S&P Retail ETF (XRT), VanEck Retail ETF (RTH), Amplify Online Retail ETF (IBUY), and ProShares Online Retail ETF (ONLN).
Housing Indicators
Existing Home Sales
Existing home sales rebounded in February with their largest monthly increase in a year. Sales rose 4.2% from January to a seasonally adjusted annual rate of 4.26 million units. Despite the monthly increase, existing home sales are down 1.2% from a year ago, marking the first month of year-over-year declines since September. The latest figure was higher than the expected 3.95 million units.
Housing affordability remains a challenge as mortgage and home prices remain elevated, but greater inventory has eased pent-up demand and allowed buyers to slowly enter the market. The median price for an existing home rose for the first time in four months but remained below $400,000 for a second straight month. This marks a 1.3% increase from January and a 3.8% rise from a year ago, the 20th consecutive month of annual increases.
NAHB Housing Market Index
Builder confidence worsened for a second straight month as economic uncertainty, tariff threats, and elevated construction costs continue to weigh on sentiment. The NAHB Housing Market Index, which measures builder opinion on current and future home sales, fell three points to 39 in March, tying its lowest level since August. The latest reading was lower than the 42 forecast.
The index is calculated based on three components: current sales, expected sales over the next six months, and prospective buyer traffic. In March, current sales and prospective buyer traffic each fell for a second consecutive month to their lowest levels in over a year. Meanwhile, expected sales were unchanged, remaining at their lowest level since December 2023.
Housing Starts and Building Permits
New home construction rose more than expected in February, but it may be short lived. Housing starts jumped 11.2% to a seasonally adjusted annual rate of 1.501 million units, above the forecasted rate of 1.380 million units. This represents a 2.9% decline from one year ago, marking the sixth consecutive month of year-over-year declines. Both single and multi-family unit housing starts increased last month. Single family units reaching their highest level in a year.
In contrast, new residential building permits decreased last month but still beat expectations. Building permits fell 1.2% to a seasonally adjusted annual rate of 1.456 million, above the forecasted rate of 1.450 million. This represents a 6.9% decline from one year ago, marking the 13th consecutive month of year-over-year declines. Single- and multi-family units saw a decline in building permits last month. Residences with 2-4 units rose to their highest level since August 2023. Building permits play a pivotal role in gauging future construction activity, making them a crucial indicator of housing market demand.
The rebound in housing starts this month did not offset the year-over-year decline in overall housing data. This suggests the housing market may weaken in the future. The impacts of tariffs and other policies have weighed heavily on builder confidence. That is because they will likely increase building costs which will then be passed on to buyers.
Zillow Home Value Index
U.S. home values continued to rise in February, notching a new record high for an 19th straight month. The Zillow Home Value Index (ZHVI) increased for the 23rd consecutive month, coming in at $357,128 representing the typical value for a home in the U.S. The index is up 0.1% from January and up 2.6% from one year ago. However, when adjusted for inflation using the latest Consumer Price Index, “real” home values dropped for a 10th straight month to the lowest level since May 2021. The inflation-adjusted index was down 0.2% from January and down 1.8% from one year ago. The ZHVI is a lesser known home value measure but is meant to be a timely, comprehensive, and transparent alternative.
Market Reactions
The S&P 500 snapped its four-week losing streak, posting a 0.51% gain from the previous Friday. As a result, the SPDR S&P 500 ETF Trust (SPY) rose 0.2% last week. Meanwhile, the S&P Equal Weight Index was up 0.6% from the previous week and the Invesco S&P 500® Equal Weight ETF (RSP) rose 0.7%.
The 10-year Treasury yield finished the week at 4.25%, while the 2-year note finished at 3.94%.
In their meeting last week, the Fed held rates steady at 4.25-4.50% for a second straight meeting. According to the CMEFedWatch tool, markets are currently pricing in three 25-basis-point rate cuts in 2025. The anticipated cuts are now expected at the June, September, and December meetings.
Economic Data in the Week Ahead
The economic calendar for the coming week is full of important releases. The Bureau of Economic Analysis will release its final Q4 GDP estimate. It will provide a revised look at how the economy grew at the end of 2024. The Department of Commerce will release the PCE Price Index, the Fed's preferred inflation measure. It will be closely watched to see if it is moving toward the 2% target amidst economic uncertainty. Additionally, the Conference Board's Consumer Confidence Index and the University of Michigan's Consumer Sentiment Index will provide insights into consumer attitudes. The week will be rounded out by more housing data, including reports on February's new and pending home sales, as well as home price indexes from the FHFA and S&P Case-Shiller.
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