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Economic & Housing Weekly Note

Consumer Spending Strong While Housing Troubled by Lack of Inventory for Sale

May 27, 2021

Key Takeaways:

  • Gross domestic product, adjusted for inflation, was unchanged at 6.4 percent annualized in Q1 2021, according to the second estimate from the Bureau of Economic Analysis (BEA). Consumer spending and business fixed investment were revised upward, though were offset by downward revisions to exports and private inventory investment.
  • Durable goods orders declined 1.3 percent in April, though rose 1.0 percent when excluding transportation, according to the Census Bureau, as orders for motor vehicles and parts fell by 6.2 percent. Durable good shipments rose 0.6 percent, boosted by a 37.1 percent increase in nondefense aircraft shipments. Orders of core capital goods (nondefense excluding aircraft) jumped 2.3 percent, the largest monthly increase since August 2020, while core shipments increased 0.9 percent.
  • The Conference Board Consumer Confidence Index was essentially unchanged in May, falling three-tenths to 117.2. The index measuring consumer confidence in the present situation jumped 12.4 points to 144.3, the highest level since March 2020, while the index of consumer expectations fell by 8.8 points to 99.1.
  • New single-family home sales fell 5.9 percent in April to a seasonally adjusted annualized rate (SAAR) of 863,000, according to the Census Bureau. Furthermore, the estimate for March was revised sharply downward by 10.2 percent. Sales fell in every region except for the West. Sales of homes not yet started jumped by 16.5 percent to a SAAR of 325,000. New homes for sale increased 3.9 percent, the largest monthly increase since July 2014. The increase in new homes for sale to a level of 91,000 was driven almost entirely by a 15.2 percent increase in homes for sale that were not yet started. This is 68.5 percent above the level seen in January 2020. The months’ supply rose four-tenths to 4.4, the highest level in almost a year. The median sales price jumped 20.1 percent from a year ago, the fastest annual pace of growth since January 1988.
  • The National Association of REALTORS® Pending Home Sales Index, which records contract signings of existing homes and typically leads closings by one to two months, fell 4.4 percent in April to 106.2, the lowest level since May 2020. Sales fell in every region other than the Midwest.
  • The FHFA Purchase-Only House Price Index, reported on a seasonally adjusted basis, increased 13.9 percent from a year ago in March, an acceleration of 1.5 percentage points from the prior month's reading.
Forecast Impact:

While headline GDP was unaffected by the second estimate from the BEA, the increase in Q1 consumer spending suggests the possibility that more spending was pulled forward into Q1 than we had previously thought, which might lead to a somewhat lower pace of consumption growth in the second quarter. The partially offsetting downward revision to inventory investment, however, while likely reflective of ongoing supply chain disruptions, currently suggests the further need to build inventories will be a larger driver of growth in the future. The increase in April core capital goods shipments, a boon for business investment, is consistent with our outlook for strong growth in the second quarter. However, this report also highlighted the current difficulties faced by auto manufacturers as new orders and shipments for motor vehicles each fell by over 6 percent. This is most likely a result of the current semiconductor shortages, which is inhibiting the ability of auto manufacturers to produce new vehicles, though we believe this effect should dissipate over time.

In housing, the decline in April new single-family home sales was not unexpected, though the downward revision to March was. Regardless, we interpret the release to be additional evidence that material prices and a lack of labor and lots are holding back new homebuilding. A growing construction backlog, combined with strong home price appreciation, suggests to us that demand for new homes remains strong but homebuilders are struggling to keep up. Home price appreciation continued its impressive ascent, with the FHFA Purchase-Only House Price Index rising at the fastest annual pace of growth in series history as inventories remain low. The decline in pending home sales was more than expected and continues to suggest that the lack of available inventories is weighing on existing sales.


Ricky Goyette
Economic and Strategic Research Group
May 27, 2021

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