This week’s economic calendar is packed with key reports and influential Fed speeches – and all eyes will be on how the data shapes central bankers’ views amid escalating uncertainty. The focus will be on new home sales, personal income and spending, and the PCE inflation measures.
1. Housing Market Update
After declining in January, new home sales are expected to rebound slightly – though they will likely remain below year-ago levels. Mortgage rates have been on a roller coaster ride, dropping roughly 30 basis points since mid-February and improving affordability, yet uncertainty is weighing on both demand and supply. The monthly supply of new houses in January was 8.8 months, up from 7.9 months a year ago, indicating that the flow of newly built homes may keep shrinking. Home prices measured by the S&P Case-Shiller index should also show a deceleration. This will be a look in the rear view mirror since the Case-Shiller report will highlight January data. Housing data for January shows resale supply was up considerably relative to demand, hinting that home price growth will decelerate.
2. Consumers Under Pressure
Personal income in January was 4.6% higher than a year ago – down from 5.1% in December – while personal consumption expenditures were up 5.6% from a year ago, a moderation from December’s 5.8%. More strikingly, in January, personal income rose by 0.9% but consumption fell by 0.2%, pushing the personal savings rate to 4.6% from 3.5% the previous month. This suggests that, amid uncertainty and weaker job prospects, consumers are increasingly holding off on purchases and tightening their belts.
3. Inflation in Focus: The PCE Report
The main event this week is the PCE report. In January, inflation measured by the PCE stood at 2.5% year-over-year compared to 2.6% in December, while core PCE was up 2.6% – a deceleration from December’s 2.9%. Although disinflation appears to be underway, if price pressures come in higher than expected, it could reignite stagflation fears. Conversely, faster disinflation might signal that consumer finances are deteriorating more rapidly, potentially triggering further market volatility as investors seek the safety of government bonds.
Looking Ahead
Escalating policy uncertainty – from the new administration’s tariff stance – continues to weigh on the economy by reducing business investment and slowing economic growth. This uncertainty, acting as a negative supply shock, is expected to keep prices somewhat elevated while pulling down real income growth and consumer spending.
