The Weekly Briefing - April 27th, 2021

The Weekly Briefing – April 27th, 2021

In This Week’s Brief:

  • Strengthening Labor Market Helps Fuel Surge in LEI Index
  • Existing Home Market Constrained by Limited Supply, While New Home Sales Surge

Strengthening Labor Market Helps Fuel Surge in LEI Index

The Conference Board’s Leading Economic Indicators (“LEI”) index came in at 111.6 for March, inching closer to the previous all-time high of 111.9 in February 2020. The index rose sharply by 1.3% in March after a slight slide of negative 0.1% in February. The index includes ten components grouped into five key areas—labor markets, manufacturing, consumer sentiment, construction, and financial markets—all of which have seen positive momentum through the last several months due to the confluence of increased vaccination totals, loosening business restrictions, and federal stimulus payments.

Weekly unemployment insurance claims continued the downward trend observed since the start of the year and contributed 0.35 index points to LEI last month. The four-week moving average of jobless claims, which smooths out weekly volatility, fell to the lowest level since the start of the pandemic, highlighting green shoots of a recovering labor market.

The consumer expectations segment added 0.11 index points as consumer spending, which typically accounts for approximately two-thirds of the U.S. economy, continued to strengthen. Retail sales surged 9.8% in March as many households received a boost from federal stimulus.

The manufacturing sector is also showing signs of added strength with the ISM manufacturing index, which measures factory production and product sales, rising to a 37-year high on the strength of higher new orders, contributing 0.26 index points to the LEI.

Leading Economic Indicators (LEI) Index Values and Monthly Change

Existing Home Market Constrained by Limited Supply, While New Home Sales Surge

Existing home sales slipped 3.7% last month to the lowest level since August as a limited supply of homes available has put a crimp in market activity. The number of homes on the market has dropped 28.2% YOY to 1.1 million homes, equivalent to 2.1 months’ worth of sales. Properties are moving quickly, entering contract after only 18 days on the market on average, a record low.

At the same time, mortgage origination activity suggests demand for homes continues to rise. The Mortgage Bankers Association (“MBA”) mortgage Purchase Index increased 7% in the most recent week of data, and the MBA expects purchase origination volume will rise 16.4% this year to $1.7 trillion even as refinancing activity falls due to higher interest rates.

The combination of reduced supply and growing demand is driving prices to new heights. The median sales price of existing homes came to $329,100 in March, marking a 17.2% YOY jump and an all-time high. The median price is also probably skewed somewhat by the types of homes trading hands as lower-cost properties (<$250,000) make up a smaller share of sales activity compared to a year ago.

Year-over-Year Change in Existing Homes Sales by Price Band: March

In contrast, new home sales surged 20.7% during March to a seasonally adjusted annual rate of 1.0 million homes, the fastest pace since 2006. Homebuilders appear to be moving through inventory at a rapid clip as homes under construction or not yet started now account for 71.4% of new home sales compared to 58.5% a year ago. And the number of new homes for sale is equivalent to a tight 3.6 months of inventory compared to 6.5 months in March 2020.

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