The Federal Open Market Committee (FOMC) boosted its targets for the U.S. economy last week and vowed to continue supporting the post-pandemic recovery, even as long-term Treasury yields marched higher. The first three months have been a mixed bag of economic data in the U.S., which was apparent in the key reports out last week. Several readings from January were revised higher, but this came at the expense of modest February headlines that were impacted by severe weather across most of the U.S. The early data we’ve seen from March suggests the reopening and recovery thesis is back on track, with vaccine distribution expanding and consumers likely to receive a boost from the latest round of direct stimulus checks going out this month.


Fed Boosts Targets, Maintains Accommodative Stance: Chair Jerome Powell reiterated a dovish tone at his press conference on Wednesday. The Federal Reserve voted unanimously to keep short-term interest rates unchanged and maintain $120 billion of monthly asset purchases. The “dot plot” continues to show the median expectation of FOMC members is that rates will remain at a range of 0 to 25 basis points through 2023.

While interest rates may be staying low, the Fed did increase expectations for the U.S. economy from its December 2020 predictions. GDP is now targeted to grow 6.5 percent in 2021, while unemployment is expected to end the year down at 4.5 percent. The Federal Reserve also raised its 2021 forecast for the core Personal Consumption Expenditures (PCE) index to show 2.2 percent growth (excluding food and energy). The FOMC raised interest rates the last time the core PCE was at 2 percent in 2018; but Powell reiterated a willingness to tolerate higher prices in the short run in order to ensure the U.S. economy can return to full employment following the COVID-19 pandemic.

Robust Regional Manufacturing Numbers: On Thursday, the Philadelphia Federal Reserve Manufacturing Index came in at 51.8 for March, which was the highest reading since 1973. The improvement was driven by growth in general activity and new orders. On top of that, more than 69 percent of businesses surveyed expect activity to increase in the next six months. As investors continue to monitor signs of future inflationary pressures, it’s also worth noting that the “prices paid” component came in at the highest level in over 40 years.

Earlier in the week, the Empire State (NY) Manufacturing Index reached a more pedestrian three-year high of 17.4 in March. Behind the headline readings, figures for prices paid, prices received and future employment all posted the highest levels in over a decade.

Winter Weather Hurt Industrial Output and Housing: On Tuesday, the Federal Reserve reported that U.S. industrial production declined 2.2 percent in February. The January figure was revised higher, but severe weather across most of the country last month also played a role. Based on the more current Empire State and Philly Fed data last week, there’s evidence these trends have already begun to reverse in March.

The Housing sector was also hurt by extreme weather in February, as the Department of Commerce reported that both building permits and housing starts fell by more than 10 percent in the U.S. last month. This is one area of the economy that could ultimately be impacted by rising long-term interest rates. In the meantime, the number of houses that have been authorized but not yet started was reported at the highest level in 15 years in February, suggesting the industry remains on sound footing.

Mixed Retail Report: The Census Bureau said on Tuesday that U.S. advance retail sales declined 3 percent in February, or 3.5 percent excluding autos, food, gasoline and home improvement. One reason for the drop was that January’s blowout growth was revised up, to 7.6 percent. Eleven of 13 sectors posted lower sales in February, as the extreme cold weather also had an impact on the Services sector. Given the reduction of business restrictions in several states and the latest round of $1,400 direct stimulus checks being sent out to qualified individuals this month, the decline in consumer activity will likely prove to be temporary.


Eye on the PMI Data: IHS Markit will release its March Purchasing Managers’ Index (PMI) data for the U.S. and eurozone on Wednesday, offering the first aggregate look at both economies for this month. The U.S. composite reading has shown economic expansion since last summer, but the eurozone data has remained below the key 50 level, in part because of tighter COVID-19 restrictions and slower vaccine distribution.

More Regional Manufacturing and Durable Goods on Deck: On Wednesday, the Census Bureau will post data on U.S. February durable goods orders, which could prove to be another report that was impacted by the severe weather last month. Over the course of next week, we’ll also receive more current March regional manufacturing reports from the Kansas City and Richmond Federal Reserve districts.

PCE Next Up for Inflation Watch: On Thursday, the Bureau of Economic Analysis will announce the core PCE index reading for February. The Fed’s new 2021 forecast is 2.2 percent, compared to the 1.5 percent growth reported in January, so the market will be keeping a close eye on this inflation report.

Commentary is written to give you an overview of recent market and economic conditions, but it is only our opinion at a point in time and shouldn’t be used as a source to make investment decisions or to try to predict future market performance. To learn more, click here.

There are a number of risks with investing in the market; if you want to learn more about them and other investment-related terminology and disclosures, click here.

Recommended Reading