Budget Deficit Increases, Consumer Sentiment High During Slow Retail Month

Economic highlights from last week included:

• The U.S. Treasury Department released its most recent measures of federal tax revenues, budget deficit, and government spending. In short, government revenue decreased, and spending increased during February. A decrease in the amount withheld from employee paychecks (due to tax reform) and an increase in corporate and individual refunds led to a $16 billion or 9% decrease in government revenue for the month of February compared to last year's period. The Treasury Department stated that the budget deficit reached roughly $706 billion, or 3.6%, of Gross Domestic Product (GDP), as compared to the $583 billion (3.1% of GDP) last February.

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• Rumors surfaced Tuesday that the Trump administration intends to impose more than $60 billion in Chinese import tariffs primarily within the technology and telecommunications sectors. Reportedly, the tariffs will be focused on information technology, consumer electronics, and telecoms, and some lobbyists speculate the inclusion of labor-intensive sectors such as apparel, footwear, and toys. The Chinese government currently has a $375 billion trade surplus, an amount the current administration is looking to reduce under its current agenda.

• Late last week, the preliminary March Consumer Sentiment Index, published by the University of Michigan, increased 2 points, reaching a 14-year high at 102.0. Current conditions, measuring consumer spending and employment, increased 8 points to 122.8. The increase reflects growing confidence among low-income citizens. On the other hand, the expectations measure decreased 1.4 point to 90.0, due primarily to higher-income bracket doubts. Given the upcoming FOMC meeting, it is important to note that the survey's inflation expectations rose 0.2 to 2.9% for the year ahead and remained unchanged at 2.5% for the next five years.

• According to the US Census Bureau, retail sales slumped 0.1% for February, missing the estimated increase of 0.1% to 0.4%. The various retail sectors that negatively affected overall retail sales were auto sales (-0.9%), department stores (-0.9%), furniture (-0.8%), and health & beauty (-0.4%). On a positive note, building materials saw an increase of 1.9% during February, as compared to 1.7% in January. Given the disappointing retail sales metrics, various forecasters downgraded estimates for economic growth. For example, the Atlanta Fed's first quarter GDPNow, which is a running estimate of real GDP growth, had previously measured 5.4% during early February and had recently dropped to 1.9%.

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• Home sales decreased in January, and housing starts and permits decreased in February, according to last week’s data released by the Commerce Department. Housing starts decreased 7.0% to an annualized rate of 1.236 million, while building permits decreased 5.7% to an annualized rate of 1.298 million in their respective months. Single-family houses are a key factor in the current resurgence of the new homes market and increased 2.9% in February.