Tag Archives: Federal Reserve

Fed’s Bullard says a ‘robust debate’ is coming over steep interest rate cut

FILE PHOTO: St. Louis Federal Reserve Bank President James Bullard speaks at a public lecture in Singapore October 8, 2018. REUTERS/Edgar Su

(Reuters) – Federal Reserve policymakers will have a “robust debate” about cutting U.S. interest rates by a half percentage point at their next policy meeting in September, St. Louis Federal Reserve Bank President James Bullard said on Friday.

The Fed cut rates by a quarter point at its July policy review although the minutes of that meeting showed a couple OF policymakers favored a 50 basis point reduction.

Bullard said there would be a hardy discussion about a steep cut next month.

“I think there will be a robust debate about 50,” he said in an interview with Bloomberg TV. “I think it’s creeping onto the table.”

Bullard said a key reason for further rate cuts is the Treasury yield curve, which recently inverted again.

“The yield curve is inverted here. We’ve got one of the higher rates on the yield curve here. That’s not a good place to be,” Bullard told CNBC in a separate interview.

Bullard had said last week that he was not ready to commit to reducing rates at the Fed’s upcoming Sept. 17-18 meeting.

(Reporting by Jason Lange in Washington and Kanishka Singh in Bengaluru; Editing by Chizu Nomiyama)

The Fed will soon cut U.S. interest rates. What will it mean for your wallet?

FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis/File Photo

By Trevor Hunnicutt and Jason Lange

NEW YORK/WASHINGTON (Reuters) – A decision by the Federal Reserve to cut interest rates may do little at this point to cut some of the costs that matter to many U.S. consumers.

From mortgages to credit cards, banks and other lenders may resist offering substantially lower rates to consumers, analysts said, even if the central bank makes a widely expected cut to its policy rate, currently targeted between 2.25% and 2.50%.

For one thing, some borrowing costs are already low and markets have already priced in expectations the Fed would support the economy. Mortgage rates have also dropped, with rates on the average 30-year U.S. home loan falling under 4.1%, near a 22-month low, more than half a point below the average since the global financial crisis more than a decade ago, according to the Mortgage Bankers Association.

“If we drive down into the mid-3.7%, mid-3.8% range, you’re talking about historic affordability from a purchasing power standpoint,” said Mark Fleming, chief economist for First American Financial Corp, which provides insurance related to real estate transactions. “There’s not a lot of wiggle room here in the first place. I think we established five or six years ago that a mortgage rate around 3.5% or 3.6% is a floor. That’s about as low as you can go.”

That low mortgage level was when the Fed’s rates were near zero and the central bank was buying mortgage bonds in the aftermath of the financial crisis to drive longer-term rates even lower – a far cry from where policy is now.

At the same time, one of the Fed’s main goals in cutting rates is to bring inflation up to the 2% level policymakers consider healthy, and maybe even higher to make up for long periods of missing that target. If the Fed succeeds, longer-term bonds most sensitive to inflation could fall in price, causing their yields to rise. Because U.S. mortgages are benchmarked to those longer-term bonds, rates could rise again.

For many consumers, the obstacle to buying a house has not been mortgage rates, but stricter lending standards that reduced access to mortgages in the first place. Big price increases and limited supply have also made housing less affordable. Lower rates could make housing even more out of reach by spurring demand, driving prices even higher.

Financing for new cars might be a different story, though, especially given the large role of automakers themselves in the car loan business. Those businesses have an incentive to increase lending to support the auto market.

Savers, meanwhile, have been rewarded in recent months for shopping around for higher-yielding savings accounts and certificates of deposit. Thanks to increased competition, some online banks have been pushing yields up for those products even with the expected rate cut.

That could change if the Fed is embarking on a prolonged series of rate cuts, as some investors are betting. But the biggest factor could still be overall competition between financial institutions for savers’ money, said Morningstar Inc analyst Eric Compton.

Consumers, however, are in a much better place than they have been in years, by some measures. They have higher take-home pay, lower debt and better credit scores than during the financial crisis. “You’ve got consumers that are pretty healthy, savings rates are pretty good,” said Neal Van Zutphen, president of Intrinsic Wealth Counsel Inc, a financial planner. “They’re taking advantage of this anticipatory drop in rates.”

(Reporting by Trevor Hunnicutt in New York and Jason Lange in Washington; Editing by Leslie Adler)

Moderate U.S. consumer spending, inflation support rate cut

FILE PHOTO: A man shops at a store that sells parts and accessories for Recreational Vehicles (RVs) in Orlando, Florida, U.S., June 20, 2019. REUTERS/Carlo Allegri/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer spending and prices rose moderately in June, pointing to slower economic growth and benign inflation that could see the Federal Reserve cutting interest rates on Wednesday for the first time in a decade.

The report from the Commerce Department on Tuesday was released as officials from the Fed were due to gather for a two-day policy meeting against the backdrop of an uncertain economic outlook. The 10-year old economic expansion, the longest in history, is facing headwinds from trade tensions, fears of a disorderly departure from the European Union by Britain and weak global growth.

With those risks in mind, Fed Chairman Jerome Powell early this month signaled the U.S. central would ease monetary policy. A strong labor market and signs that the economy was not slowing abruptly, however, saw financial markets dialing back expectations of a 50 basis point rate cut on Wednesday.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, gained 0.3% as an increase in services and outlays on other goods offset a decline in purchases of motor vehicles.

Data for May was revised up to show consumer spending rising 0.5% instead of the previously reported 0.4% advance. Economists polled by Reuters had forecast consumer spending climbing 0.3% last month.

The data was included in last Friday’s second-quarter gross domestic product report, which showed consumer spending increased at a 4.3% annualized rate, accelerating from a tepid 1.1% pace in the January-March period.

U.S. financial markets were little moved by the data.

SAVINGS SURGE

Robust consumer spending blunted some of the hit to GDP from weak exports, business investment and a slowdown in inventory accumulation. The economy grew at a 2.1% rate last quarter, pulling back from the first quarter’s brisk 3.1% pace.

The economy is slowing largely as the stimulus from last year’s $1.5 trillion tax cut package fades.

Consumer prices as measured by the personal consumption expenditures (PCE) price index edged up 0.1% in June as food and energy prices fell. The PCE price index gained 0.1% in May. In the 12 months through June, the PCE price index rose 1.4% after a similar increase in May.

Excluding the volatile food and energy components, the PCE price index rose 0.2% last month, increasing by the same margin for a third straight month. That lifted the annual increase in the so-called core PCE price index to 1.6% from 1.5% in May.

The core PCE index is the Fed’s preferred inflation measure and has undershot the U.S. central bank’s 2% target this year.

When adjusted for inflation, consumer spending gained 0.2% in June. This so-called real consumer spending rose 0.3% in May. Last month’s small gain in core consumer spending likely sets up consumption for a step-down in the third quarter after the robust growth recorded in the April-June period.

Last month, spending on goods rose 0.3%. Spending on services also rose 0.3%.

Consumer spending in June was supported by a 0.4% rise in personal income, which followed a similar increase in May. Wages increased 0.5%. Savings shot up to $1.34 trillion from $1.31 trillion in May.

(Reporting Lucia Mutikani; Editing by Andrea Ricci)

Feds seen lowering U.S. rates by late July

FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis/File Photo

NEW YORK (Reuters) – The Federal Reserve will likely reduce key U.S. borrowing costs by a quarter-point at its upcoming July 30-31 policy meeting with the chance of a 50 basis-point decrease, Bank of America Merrill Lynch analysts said on Wednesday.

The U.S. central bank would follow a possible July rate cut with two more at the Fed’s next two meetings in the aftermath of a perceived “dovish” testimony from Fed Chairman Jerome Powell before a House panel, the BAML analysts said.

(Reporting by Richard Leong; Editing by Chizu Nomiyama)

Fed rate-cut signal sends stocks surging, wounds yields, dollar

FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., June 19, 2019. REUTERS/Brendan McDermid/File Photo

By Lewis Krauskopf

NEW YORK (Reuters) – World stock markets surged on Thursday, with the U.S. benchmark S&P 500 hitting a record high, while the 10-year U.S. Treasury yield fell below 2% as investors digested a signal from the Federal Reserve of potential U.S. interest rate cuts as soon as its next meeting.

The U.S. dollar also weakened after the Fed – the U.S. central bank – on Wednesday indicated a marked shift in sentiment even as it left its benchmark rate unchanged for now.

“We have obviously morphed into the Fed taking the pole position as far what’s driving the market right now, both domestically and on a global basis as well,” said Mike Mullaney, director of global markets research at Boston Partners.

“It’s risk-on trade again right now for the time being and I don’t see anything on a near-term basis that is going to disrupt that.”

Oil prices also surged, lifted by the Fed as well as by news that Iran shot down a U.S. military drone, raising fears of a military confrontation between Tehran and Washington.

MSCI’s gauge of stocks across the globe gained 1.02%. The index hit its highest since May 1.

On Wall Street, the Dow Jones Industrial Average rose 203.87 points, or 0.77%, to 26,707.87, the S&P 500 gained 21.98 points, or 0.75%, to 2,948.44 and the Nasdaq Composite added 65.04 points, or 0.81%, to 8,052.36.

Energy, technology and industrials were among the best-performing S&P 500 sectors.

“Cyclicals are definitely getting a big pop today,” Mullaney said.

The pan-European STOXX 600 index rose 0.52%, reaching its highest since early May.

Benchmark government bond yields in the United States and Europe tumbled following the Fed’s decision, with the U.S. 10-year note yield falling below 2% for the first time in 2-1/2 years.

Benchmark 10-year U.S. notes last rose 12/32 in price to yield 1.9855%, from 2.027% late on Wednesday.

“The statement indicated the Fed no longer insists on a pause or patience, providing an open ear to doves at upcoming meetings. Also critical … acknowledgment that inflation pressures are muted,” said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.

“As difficult as it might be to imagine, rates are also free to fall further,” he added.

The dollar index, which measures the greenback against a basket of currencies, fell 0.46%, with the euro up 0.6% to $1.1291.

U.S. crude rose 5.73% to $56.84 per barrel and Brent was last at $64.51, up 4.35%.

 

(Additional reporting by Gertrude Chavez-Dreyfuss in New York and Tom Wilson in London; editing by Larry King and James Dalgleish)

Fed holds rates steady, signals cuts possible later this year

Federal Reserve Chairman Jerome Powell holds a news conference following a two-day Federal Open Market Committee meeting in Washington, U.S., June 19, 2019. REUTERS/Kevin Lamarque

By Howard Schneider and Jason Lange

WASHINGTON (Reuters) – The U.S. Federal Reserve held interest rates steady on Wednesday but signaled possible rate cuts of as much as half a percentage point over the remainder of this year, as it responded to increased economic uncertainty and a drop in expected inflation.

The U.S. central bank said it “will act as appropriate to sustain” the economic expansion as it approaches the 10-year mark and dropped a promise to be “patient” in adjusting rates. Nearly half its policymakers now show a willingness to lower borrowing costs over the next six months.

While new economic projections showed policymakers’ views of growth and unemployment largely unchanged, they saw headline inflation at just 1.5 percent for the year, down from the 1.8 percent projected in March.

They also expect to miss their 2 percent inflation target next year as well.

Seven of 17 policymakers said they expected it would be appropriate to cut rates by half of a percentage point by the end of 2019, and an eighth saw a rate cut of a quarter point as appropriate.

That was not enough to change the median outlook for the Fed’s targeted overnight lending rate, which officials projected to remain in a range of between 2.25% and 2.50% for the rest of this year.

But it still represented a significant shifting of views on the Fed. It appeared many, and perhaps most, policymakers trimmed a full half percentage point from their outlook for rates. Only one policymaker continues to see a rate hike as likely in 2019.

The long-run federal funds rate, a barometer for the state of the economy over the long term, was cut to 2.50% from 2.80%.

U.S. stocks turned higher after the Fed’s statement was released, with the benchmark S&P 500 up about 0.25% from the previous day’s close. Ahead of the statement, stocks had been fractionally lower on the day.

Yields on U.S. Treasury securities, which had been modestly higher before the rate decision was released, slipped. The 10-year Treasury note yield was down 1 basis point at just shy of 2.05%. The dollar weakened against the euro.

Along with the change in the policy statement, Wednesday’s projections open the door for the central bank to lower rates in short order if the economy weakens, or U.S. trade disputes with China and other nations escalate.

The Fed continued to regard the labor market as “strong” and said “sustained expansion of economic activity” and eventually rising inflation were still “the most likely outcomes.” The drop in inflation, however, was a blow for a central bank hoping to reach its target sometime next year.

Fed Chairman Jerome Powell will hold a press conference at 2:30 p.m. EDT (1830 GMT) to elaborate on the results of the policy meeting, which was the first since President Donald Trump raised tariffs on $200 billion of Chinese imports and threatened, though ultimately decided against, imposing new tariffs on Mexican goods.

Those actions caused Fed officials to change their tone from largely dismissing the macroeconomic fallout of Trump’s trade policies to worrying that a new world order of persistent high tariffs and reordered global supply chains could be emerging.

St. Louis Fed President James Bullard, who had argued that rates should be cut, dissented in Wednesday’s policy decision.

(Reporting by Howard Schneider and Jason Lange; Editing by Paul Simao)

Muted U.S. inflation strengthens case for Fed rate cut

People tour The Shops during the grand opening of The Hudson Yards development, a residential, commercial, and retail space on Manhattan's West side in New York City, New York, U.S., March 15, 2019. REUTERS/Brendan McDermid

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer prices barely rose in May, pointing to moderate inflation that together with a slowing economy increased pressure on the Federal Reserve to cut interest rates this year.

But the report from the Labor Department on Wednesday will likely not shift Fed officials’ views that temporary factors are behind the weak inflation readings. Airline fares, among the transitory factors identified by Fed Chairman Jerome Powell, rebounded and apparel prices stabilized after two straight monthly decreases.

U.S. central bank policymakers are scheduled to meet on June 18-19 against the backdrop of rising trade tensions, slowing growth and a sharp step-down in hiring in May that has led financial markets to price in at least two rate cuts by the end of 2019. A rate cut is not expected next Wednesday.

“This soft inflation backdrop reinforces our call for two (rate) cuts later this year,” said Michael Feroli, an economist at JPMorgan in New York. “We think next week is probably too soon to expect that action, given that growth is still holding in and trade-related risks remain two-sided.”

The consumer price index edged up 0.1% last month as a rebound in the cost of food was offset by cheaper gasoline, the government said. The CPI gained 0.3% in April.

In the 12 months through May, the CPI increased 1.8%, slowing from April’s 1.9% gain. May’s rise in the CPI was broadly in line with economists’ expectations.

Excluding the volatile food and energy components, the CPI nudged up 0.1% for the fourth straight month, the longest such stretch since April 2017. The so-called core CPI was held down by a sharp decline in the prices of used cars and trucks as well as motor vehicle insurance.

In the 12 months through May, the so-called core CPI rose 2.0% after advancing 2.1% in April.

U.S. Treasury prices were trading mostly higher, while the dollar was little changed against a basket of currencies. Stocks on Wall Street slipped as the rate-cut hopes were overshadowed by investor anxiety over the U.S.-China trade war.

GROWTH SLOWING

U.S. President Donald Trump in early May slapped additional tariffs of up to 25% on $200 billion of Chinese goods, prompting retaliation by Beijing. Trump on Monday threatened further duties on Chinese imports if no deal was reached when he meets Chinese President Xi Jinping at a G20 summit at the end of this month in Japan.

Economists have warned that the tariffs will undercut the economy, which will celebrate 10 years of expansion in July, the longest in history. Powell said last week the Fed was closely monitoring the implications of the trade war on the economy and would “act as appropriate to sustain the expansion.”

Data so far have suggested a sharp slowdown in U.S. economic growth in the second quarter after a temporary boost from exports and an accumulation of inventory early in the year. Job growth slowed sharply in May. Manufacturing production, exports and home sales dropped in April, while consumer spending cooled.

The Atlanta Fed is forecasting gross domestic product to increase at a 1.4% annualized rate in the April-June quarter. The economy grew at a 3.1% pace in the first quarter.

A survey of chief executive officers published on Wednesday showed unease about trade policy negatively impacting sales expectations as well as capital spending and hiring plans over the next six months.

The Fed’s preferred inflation measure, the core personal consumption expenditures (PCE) price index, increased 1.6 percent in the year to April after gaining 1.5% in March. Data for May will be released later this month. The core PCE price index has been running below the Fed’s 2% target this year.

Gasoline prices fell 0.5% in May after rising 5.7% in April. Food prices rebounded 0.3% in May after dipping 0.1% in the prior month. Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, increased 0.3% in May after rising 0.3% in April.

Healthcare costs increased 0.3%, matching April’s rise. That mirrored an increase in healthcare costs at the producer level, suggesting a pickup in the core PCE price index in May. There were gains in hospital and doctor fees. But prices for prescription medication fell 0.2%.

Apparel prices were unchanged in May after tumbling 0.8% in the prior month. They had declined for two months in a row after the government introduced a new method and data to calculate apparel prices. Economists expect the duties on Chinese goods to lift apparel prices in the coming months.

“That’s going to change with new tariffs on the way unless apparel companies can teach other nations to knit sweaters as well as Chinese workers can do,” said Chris Rupkey, chief economist at MUFG in New York.

Prices for used motor vehicles and trucks tumbled 1.4%. That was the largest drop since last September and marked the fourth straight monthly decrease. The cost of motor vehicle insurance fell 0.4%, the most since May 2007. The cost of recreation also decreased.

But prices for airline tickets rebounded 2.0% after falling for two straight months. Prices for household furnishings and new vehicles rose in May. Household furnishings prices are likely to trend higher in the coming months because of the duties on Chinese imports.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Weak U.S. employment report casts pall over economy

FILE PHOTO: Brochures are displayed for job seekers at the Construction Careers Now! hiring event in Denver, Colorado U.S. August 2, 2017. REUTERS/Rick Wilking/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth slowed sharply in May and wages rose less than expected, raising fears that a loss of momentum in economic activity could be spreading to the labor market, which could put pressure on the Federal Reserve to cut interest rates this year.

The broad cool-off in hiring reported by the Labor Department on Friday was even before a recent escalation in trade tensions between the United States and two of its major trading partners, China and Mexico. Analysts have warned the trade fights could undermine the economy, which will celebrate 10 years of expansion next month, the longest on record.

Adding a sting to the closely watched employment report, the economy created far fewer jobs in March and April than previously reported.

The economy thus far has been largely resilient to the trade war with China. President Donald Trump in early May slapped additional tariffs of up to 25% on $200 billion of Chinese goods, which prompted retaliation by Beijing.

Last week, Trump said he would impose a tariff on all goods from Mexico in a bid to force authorities in that country to stop immigrants from Central America from crossing the border into the United States. Talks are ongoing to prevent the duties from kicking in at 5% on June 10.

Fed Chairman Jerome Powell said on Tuesday the central bank was closely monitoring the implications of the trade tensions on the economy and would “act as appropriate to sustain the expansion.”

“Today’s report makes a cut more likely, and supports our view that the trade tensions will ultimately slow growth enough for the Fed to respond in September and December with cuts,” said Joseph Song, an economist at Bank of America Merrill Lynch in New York.

Nonfarm payrolls increased by 75,000 jobs last month, the government said in its closely watched employment report, falling below the roughly 100,000 needed per month to keep up with growth in the working-age population.

Economists polled by Reuters had forecast payrolls rising by 185,000 jobs last month. Job growth in March and April was revised down by 75,000.

In the wake of the weak report financial markets priced in a rate cut as early as July and two more later this year. U.S. Treasury prices rallied, while the dollar dropped against a basket of currencies. Stocks on Wall Street were trading higher.

May’s disappointing job growth was flagged by a report on Wednesday from payrolls processing firm ADP showing the smallest gain in private payrolls in nine years last month. Another report this week showed a drop in online ads by businesses looking for help.

Last month’s slowdown in job gains, however, probably understates the health of the labor market as measures such as weekly applications for unemployment benefits and the Institute for Supply Management’s services employment gauge have suggested underlying strength.

WORKER SHORTAGES

Some of the weakness in hiring last month could be the result of worker shortages, especially in the construction, transportation and manufacturing sectors.

Monthly wage growth remained moderate in May, with average hourly earnings increasing six cents, or 0.2% following a similar gain in April. That lowered the annual increase in wages to 3.1% from 3.2% in April. The average workweek was unchanged at 34.4 hours last month.

The moderation in wage gains, if sustained, could cast doubts on the Fed’s optimism that inflation would return to the U.S. central bank’s 2% target.

The tepid employment report added to soft data on consumer spending, business investment, manufacturing and homes sales in suggesting the economy was losing momentum in the second quarter following a temporary boost from exports, inventory accumulation and defense spending. Growth is cooling as the massive stimulus from last year’s tax cuts and spending increases fades.

The Atlanta Fed is forecasting gross domestic product rising at a 1.5% annualized rate in the second quarter. The economy grew at a 3.1% pace in the first quarter.

The unemployment rate remained near a 50-year low of 3.6% in May. A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, dropped two-tenths of a percentage point to 7.1% last month, the lowest since December 2000.

The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, was unchanged at 62.8% last month.

Hiring slowed across all sectors in May. Manufacturing payrolls increased by 3,000 last month, after gaining 5,000 positions in April. The sector is struggling with an inventory overhang that has resulted in businesses placing fewer orders at factories.

Manufacturing payrolls will be watched closely for signs of any fallout from the trade tensions. Factory output has weakened and sentiment dropped to a 31-month low in May, with manufacturers worried mostly about trade.

Employers in the construction sector hired 4,000 workers in May after adding 30,000 jobs to payrolls in April. Leisure and hospitality sector payrolls increased by 26,000 jobs last month.

Professional and business services employment rose by 33,000. Transportation and warehousing payrolls fell as did retail employment. Government shed 15,000 jobs, the most since January 2018.

(Reporting by Lucia Mutikani, Editing by Andrea Ricci)

U.S. retail sales, jobless claims data brighten economic picture

FILE PHOTO: People walk with shopping bags at Roosevelt Field mall in Garden City, New York, U.S., December 7, 2018. REUTERS/Shannon Stapleton

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. retail sales increased by the most in 1-1/2 years in March as households boosted purchases of motor vehicles and a range of other goods, the latest indication that economic growth picked up in the first quarter after a false start.

The economy’s enduring strength was underscored by other data on Thursday showing the number of Americans filing applications for unemployment benefits dropped to the lowest in nearly 50 years last week.

Fears of an abrupt slowdown in activity escalated at the turn of the year after a batch of weak economic reports. But those concerns have dissipated in recent weeks amid fairly upbeat data on trade, inventories and construction spending that have suggested growth last quarter could actually be better than the moderate pace logged in the final three months of 2018.

A report from the Federal Reserve on Wednesday described economic activity as expanding at a “slight-to-moderate” pace in March and early April. The Fed’s “Beige Book” report of anecdotal information on business activity collected from contacts nationwide showed a “few” of the U.S. central bank’s districts reported “some strengthening.”

“Supported by strong labor market conditions and improving wage growth, household spending appears well positioned to increase in the coming months,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan. “Fears about the softening in the economy were overblown.”

The Commerce Department said retail sales surged 1.6 percent last month. That was the biggest increase since September 2017 and followed an unrevised 0.2 percent drop in February.

Economists polled by Reuters had forecast retail sales would accelerate 0.9 percent in March. Retail sales in March advanced 3.6 percent from a year ago.

With March’s rebound, retail sales have now erased December’s plunge, which had put consumer spending and the overall economy on a sharply lower growth trajectory. Retail sales last month were probably lifted by tax refunds, even though they have been smaller than in previous years, following the revamping of the U.S. tax code in January 2018.

Excluding automobiles, gasoline, building materials and food services, retail sales rebounded 1.0 percent in March after a downwardly revised 0.3 percent decline in February. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

They were previously reported to have decreased 0.2 percent in February. Consumer spending accounts for more than two-thirds of economic activity and is being buoyed by a tightening labor market that is driving up wage growth.

STRONG LABOR MARKET

A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits dropped 5,000 to a seasonally adjusted 192,000 for the week ended April 13, the lowest level since September 1969. Claims have now declined for five straight weeks. Economists had forecast claims would rise to 205,000 in the latest week.

Though the trend in hiring has slowed, job gains remain above the roughly 100,000 needed per month to keep up with growth in the working-age population. The unemployment rate is at 3.8 percent, near the 3.7 percent Fed officials project it will be by the end of the year.

The dollar was trading higher against a basket of currencies while stocks on Wall Street were mixed. Prices of U.S. Treasuries were up.

March’s strong core retail sales could result in the further upgrading of first-quarter GDP estimates. Growth forecasts for the first quarter were boosted to around a 2.5 percent annualized rate on Wednesday after data showed the U.S. trade deficit narrowed for a second straight month in February.

First-quarter growth forecasts have been raised from as low as a 0.5 percent rate following relatively strong reports on trade, inventories and construction spending. The economy grew at a 2.2 percent pace in the fourth quarter.

Another report from the Commerce Department on Thursday showed business inventories rose in February and stock accumulation in the prior month was a bit stronger than initially estimated, a potential boost to growth.

Stronger growth in the first quarter will probably not change the view that the economy will slow this year as the stimulus from a $1.5 trillion tax cut package diminishes and the impact of interest rate hikes over the last few years lingers.

It also is unlikely to have any impact on monetary policy after the Fed recently suspended its three-year campaign to tighten monetary policy. The central bank dropped projections for any rate hikes this year after increasing borrowing costs four times in 2018.

In March, sales at auto dealerships jumped 3.1 percent, the most since September 2017. Receipts at service stations increased 3.5 percent, likely reflecting higher gasoline prices.

Receipts at clothing stores shot up 2.0 percent, the largest increase since last May. There were also increases in sales at furniture outlets, electronics and appliances shops, and food and beverage stores. Sales at building materials and garden equipment and supplies also rose last month.

Online and mail-order retail sales increased 1.2 percent in March. Sales at restaurants and bars climbed 0.8 percent, the most since last July. But receipts at hobby, musical instrument and book stores fell 0.3 percent last month.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

U.S. existing home sales surge, boosted by Fed’s signal on rates

FILE PHOTO: An existing home for sale is seen in Silver Spring, Maryland February 21, 2014. REUTERS/Gary Cameron

By Jason Lange

WASHINGTON (Reuters) – U.S. home sales surged in February to their highest level in 11 months, a sign that a pause in interest rate hikes by the Federal Reserve was starting to boost the U.S. economy.

The National Association of Realtors said on Friday existing home sales jumped 11.8 percent to a seasonally adjusted annual rate of 5.51 million units last month.

That was the highest since March 2018 and well above analysts’ expectations of a rate of 5.1 million units. The one-month percentage change was the largest since December 2015. January’s sales pace was revised slightly lower.

February’s surge came as mortgage rates fell following signals from the Federal Reserve that it was no longer eyeing rate hikes. Several years of rising rates had put a brake on parts of the U.S. housing market in 2018.

“(It’s) quite a powerful recovery that’s taking place,” said Lawrence Yun, chief economist with the National Association of Realtors.

Still, the number of sales in February was 1.8 percent lower than a year ago.

The U.S. housing market has also been held back by land and labor shortages, which have led to tight inventory and more expensive homes.

The PHLX Housing Index extended losses following the release of the figures although its decline was less steep than the broader stock market.

The median existing house price increased 3.6 percent from a year ago to $249,500 in February.

Existing home sales rose in three of the country’s four major regions and were unchanged in the Northeast.

There were 1.63 million previously owned homes on the market in February, up from 1.59 million in January.

At February’s sales pace, it would take 3.5 months to exhaust the current inventory, down from 3.9 months in January. A supply of six to seven months is viewed as a healthy balance between supply and demand.

(Reporting by Jason Lange; Editing by Andrea Ricci)