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Cha-ching, the Consumer is Back

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After a three-month hiatus, the consumer is back in action! Retail sales rose 0.6 percent in March, the first positive report since November. Eight of the 13 industries in the index were positive, with auto sales and personal care stores topping the list. Autos sales increased 2.0 percent, a nice rebound after four months of declining sales. Areas of weakness included sporting goods, apparel, and building material stores. Economists were getting worried the consumer had closed their wallets for good, but with the strong activity in March, the outlook is changing. The temporary setback is attributed to delayed tax returns, higher utility bills, adjustment to higher interest rates and a cooling off period after a robust holiday season. The rebound in March is a good sign sales will be strong going forward, but may not be enough to boost first quarter GDP. A preliminary calculation suggests retail sales are up 0.8 percent annualized for the first quarter, compared to 10.4 percent in the fourth quarter of 2017.

Other Key Indicators this Week:

Housing Starts – Home construction increased 1.9 percent in March. Activity in February was revised from -7.0 percent to -3.3 percent. The boost in March came from a 14.4 percent increase in multi-family housing, i.e., apartment buildings. Single family starts fell 3.7 percent. The lack of activity in single-family housing becomes more worrisome when you consider permits for single-family housing were down 5.5 percent, the biggest drop in seven years. Builders cite a lack of available land and higher lumber prices as key factors keeping activity at bay. Tariffs on Canadian lumber are already pushing prices higher in some parts of the country. Despite the constraints, home builder sentiment remains strong due to growing demand.

Beige Book – The latest survey of economic activity across the 12 Federal Reserve Districts had one consistent theme – concern about tariffs and a potential trade war. The concern covered a wide range of sectors, including manufacturing, agriculture and transportation. Many areas reported rising steel and aluminum prices, forcing some companies to begin stockpiling materials ahead of further price gains. The Beige Book, so called because of the original color of the report cover, maintains economic activity is progressing at "a modest to moderate pace." Wage growth is modest, and price increases, while higher, are not rising enough to cause inflation concerns.

Strategically for Credit Unions:

Several Federal Reserve spokesmen were in the news this week offering their opinions about interest rate moves and the flattening yield curve. Dallas Federal Reserve Bank President Robert Kaplan believes rates will increase twice more this year, with room for a third, but the overall path of rate hikes will be "flatter than people are accustomed to." San Francisco FRB President John Williams calmed the market when he stated that the flattening yield curve is not a sign of impending recession, but rather, that the long end of the curve just needs time to catch up to the Fed. Outgoing New York FRB President William Dudley believes monetary policy "will need to become slightly more restrictive" in coming years, as unemployment falls and inflation moves higher. Dudley increased his estimate of a neutral fed funds rate to around three percent.

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.