Industries such as recreational marine have made steady progress recovering from the Great Recession, but they probably shouldn’t expect sales to take a large step forward this year.
That’s one of the things the updated economic forecast that the Federal Reserve issued last week would suggest.
The Fed held interest rates steady and cut its forecast for U.S. economic growth to 2.2 percent from 2.4 percent. In line with that forecast it signaled that it might adopt two rather than three modest interest-rate increases during the remaining nine months of the year.
So people who are in a position to buy big-ticket items such as homes, cars and boats won’t be priced out of those markets because of increases in interest rates, but their ranks aren’t likely to grow very much.
The government’s February jobs report showed a drop in average hourly earnings. Wage growth has been painfully slow in recent years despite gains in the overall economy, and the Fed watches pay developments closely for signs of inflation.
“I’m somewhat surprised that we’re not seeing more of a pickup in wage growth,” Fed chairman Janet Yellen said during a press conference at the conclusion of a two-day meeting of the central bank’s rate-setting Federal Open Market Committee.
She doesn’t think the U.S. inflation rate will reach 2 percent — the Fed’s target — for two to three more years.
The committee was nearly unanimous in its decision to hold rates steady. The Fed saw U.S. economic growth decline during last year’s fourth quarter and watched the financial markets stumble at the start of this year as investors became concerned about the performance of the Chinese and other overseas economies.
The economy has shown improvement this year, and the Fed took note of that in the statement it issued at the end of its two-day meeting.
“Economic activity has been expanding at a moderate pace despite the global economic and financial developments in recent months,” the committee said.
“We continue to see risks,” Yellen noted during her press conference, but she also said “the U.S. economy has been very resilient.”
“Our decision to keep this accommodative policy stance reflects both our assessment of the economic outlook and the risks associated with that outlook,” she added. “The committee’s baseline expectations for economic activity, the labor market and inflation have not changed much since December.”
Some of last week’s economic reports backed the Fed’s rate decision, but others trended differently:
Retail sales fell 0.1 percent in February as car sales declined. Reuters said the Commerce Department revised January’s retail sales downward to show a 0.4 percent drop instead of the 0.2 percent gain initially reported.
Excluding autos, gasoline, building materials and food services, retail sales were unchanged in February after a downwardly revised 0.2 percent increase in January.
“The economy’s engines are not going into reverse … but at the moment, it is hard to see GDP with a 2 percent handle. Based on [Tuesday’s] lackluster sales report, policy-makers will be in no hurry to raise interest rates,” Chris Rupkey, chief economist at MUFG Union Bank in New York, told Reuters.
A day later, the Labor Department said consumer prices, excluding food and fuel, rose 0.3 percent in February. Bloomberg reported that the last time there were back-to-back gains of 0.3 percent was in early 2001.
“There’s absolutely no denying that there are inflationary pressures,” Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York, told Bloomberg. “The Fed can no longer be dismissive on inflation. They’re going to have to raise their inflation forecast.”
Housing starts rose 5.2 percent in February, to a seasonally adjusted annual rate of 1.178 million, the Commerce Department reported on Wednesday, although new applications for building permits fell 3.1 percent, to 1.167 million, from a revised January rate of 1.204 million.
Forbes reported that February’s numbers could indicate a turning point in the housing market, indicating a shift back to single-family home building.
“Multi-family housing has probably peaked,” Gus Faucher, deputy chief economist at PNC, told Forbes. “I think that’s good news for the overall economy because single-family housing is more important to overall overall economic growth.”
Overall, consumers were less optimistic in February than they were a month earlier, according to The University of Michigan’s Consumer Sentiment Index. The index’s preliminary March reading was 90, down from February’s final reading of 91.7.
“While consumers do not anticipate a recession, they no longer expect the economy to outperform the 2.4 percent rate of economic growth recorded in the past two years,” Richard Curtin, chief economist of the survey, said in a statement.
“The most important element supporting consumers’ optimism is their conviction that the slower pace of economic growth will not have an appreciable impact on maintaining the jobless rate at about its current low level.”
