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Housing remains on firm foundation

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The unusual weather patterns in February and March created fluctuations in the housing market that appear concerning at first glance. However, when you compare the two months' data together, the activity becomes normal. Construction of new homes declined 6.8 percent in March, when later winter storms hit most of the country. Yet, activity in February was revised higher to a gain of 5.0 percent, most likely due to warmer than normal weather. Looking at the bigger picture, that data reveals housing construction is up 9.2 percent from a year ago. Permits for future construction rose 3.6 percent, a welcome reversal of February's decline of 6.0 percent. Builders remain optimistic, citing improved traffic and sales. In fact, existing home sales rose 4.4 percent in March after falling 3.9 percent the prior month. The inventory of homes continues to decline, while prices increase. The median price of a home rose 6.8 percent from March 2016, while inventory shrank 6.6 percent. First-time homebuyers accounted for 32 percent of sales.

Other Key Indicators this Week:

Industrial Production – The strongest industrial production report since December was a result of extreme weakness and strength. Industrial production rose 0.5 percent in March, largely due to an 8.6 percent gain in utility output. The real concern within the report was a 0.4 percent decline in manufacturing and downward revision for February. The weakness in manufacturing is coming mostly from the automotive sector. Automotive production fell 2.6 percent, the largest decline since May 2016. U.S. motor vehicle assemblies were 11.3 million units, the lowest since February 2015. Auto sales have been a large component of consumer spending for the past several years and a main driver of economic growth. After breaking records for two years, auto sales may have reached their peak.

Beige Book – The economy continued to strengthen in a Goldilocks fashion during the early part of the year, according to the latest Beige Book findings – not too fast, but not too slow, either. The regional districts reported the level of expansion was "equally split between modest and moderate" from mid-February through the end of March. Wage growth improved as the labor market continues to tighten. Most districts reported stronger demand for higher skilled workers, as well as difficulty filling low-skilled positions. Many respondents in the survey noted high turnover rates and trouble retaining workers. Inflation was modest, with only a slight increase in some prices. Consumer spending growth was mixed across the regions, especially in the non-auto retail area.

Between the Numbers:

The financial markets remained in "safe haven" mode this week. Take your pick on the reason why: lack of confidence in tax reform, North Korean missile tests, this weekend's first round of elections in France, or mixed housing data. The 10-year Treasury note closed below the critical 2.20 percent level mid-week before managing to find support around 2.22 percent. As long as stock investors remain nervous about the economy, the Treasury market will continue to be a safe haven and cause yields to stay at the low end of the range.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.