While all eyes will be on the Friday jobs report, other recent economic releases point to an expected surge in consumer spending in March and the months ahead which bodes well for economic growth and maybe more fuel for yields to rise. The jobs numbers may be the cherry atop the cake at this point. The latest consumer confidence reading soared well past expectations and was the highest in more than a year as stimulus checks and increasing vaccination rates are sparking confidence which will likely lead to increased spending as pent-up demand greets said stimulus checks (more on that below). Finally, in our latest podcast we sat down with Jesse Cole, founder of Fans First Entertainment and owner of the Savannah Bananas baseball club. His team has welcomed more than one million fans to their historic Savannah ballpark and play virtually every game to sold out crowds. Learn how he creates and sustains such enthusiasm for a small market minor league baseball team.  It’s an entertaining show, so go give it a listen. The iTunes link can be found here and the Spotify link here.


Economic News

Lately, we’ve been watching the S&P CoreLogic CS 20-City Housing Report, and specifically the annual appreciation of the index. It has moved into double-digit gain territory in recent months as the graph below shows.  The latest release of the report points to further gains that are closing in on the highs from the housing bubble more than fifteen years ago. The January S&P CoreLogic 20-City Home Price Change moved up to a 11.10% (YOY) price gain versus December’s 10.17% appreciation rate. Once again, year-over-year gains were led by Phoenix (15.80%), Seattle (14.34%), and San Diego (14.20%). Boston was the best city east of the Mississippi coming in at 12.70%,  As shown in the graph below, dating back to the housing bubble period, the January gain was the largest since 2014 and not too far off the bubble period gains in the mid-teens.

While it’s too early to say we’ve entered another housing bubble we seem headed in that direction. It makes us wonder too, if the Fed is watching these price gains, and they are, it might make them less inclined to temper the ongoing yield increases on the longer-end of the curve. Perhaps better to let higher rates lower the temperature coming off the housing sector rather than amp-up QE purchases and lower yields and encourage even steamier price gains and risk entering another housing bubble, Part II.

Consumer Confidence Soars Setting Stage for Heavy Spending

We’ve written often about the link between consumer confidence and eventually GDP and we’re at it again today. With two-thirds of our economy tied to consumption it seems logical that as confidence waxes and wanes that spending will eventually follow suit and thus impact economic growth, accordingly. The latest read on consumer confidence is another clarion call that the economy is set to show some impressive gains in the coming months. The Conference Board’s March read on consumer confidence hit a one-year high increasing from 90.4 in February to 109.7 in March. According to the Conference Board that is the sharpest one-month gain in nearly 18 years and is the highest reading since March 2020’s pre-pandemic reading of 118.8. Bloomberg consensus had confidence coming in at 96.9.

After staggering around in the 80 and 90 region since the pandemic it looks like the combination of stimulus checks and widespread vaccination distribution has got the consumer returning almost to pre-pandemic levels of confidence. That is just the latest reason to expect spending to be robust for the next several months as stimulus checks arrive to quench the thirst of pent-up demand. In fact, intentions to buy homes, autos, and major appliances all posted multi-month highs. This is another reason why we think the Fed is not likely to quell the bias towards higher long-term rates as the consumer seems unconcerned about that at the moment, and as we mentioned earlier the Fed probably wouldn’t mind seeing a little of the froth in interest rate sensitive sectors like housing ease up just a little rather than go into full rolling boil mode.  Thus, we still see the near-term direction of longer-term rates as higher with a test of 2.00% for the 10-year a logical destination.

Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 0.11 0.34 0.71 1.14 2.20 2.66
0.50 0.10 0.31 0.65 1.03 2.06 2.55
1.00 0.09 0.28 0.62 0.99 1.97 2.42
2.00 0.27 0.56 0.91 1.55 NA
3.00 0.86 1.79 NA
4.00 1.74 NA
5.00 1.71 NA
10.00 NA

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Published: 03/31/21 Author: Thomas R. Fitzgerald