The weather got 71 mentions in the latest Beige Book describing the U.S. economy. So if central bankers are right that a slow first quarter was weather-impacted rather than a sign of impending deterioration, it’s going to have to start showing up in the numbers soon.
That’s why Friday’s report on durable-goods orders will be scrutinized closely by the market. It does reflect activity in March—so, the first quarter—but the softness in business investment has been evident for some time, well before the snow that froze activity in Boston and much of the Northeast.
“That’s the next number that’s going to be an indicator of whether we’re getting over this first-quarter slowdown,” said David Lafferty, chief market strategist of Natixis Global Asset Management.
He said he wasn’t sure why business investment has been so lackluster.
“Nothing seems to be lining up with the jobs numbers,” he said. “As unemployment goes down, wage increases are on the table, so maybe CEOs are girding for higher wages going forward.”
The week also will feature a number of housing indicators, including the existing-home sales report for Wednesday and the new-home sales report on Thursday.
There, too, the picture has been mixed, with the past week’s reports showing disappointing housing starts but a strong home-builder survey. “I think this year is starting to look a lot like last year, where the first quarter gets discounted as the temperature gets warmer,” said Lafferty. “We don’t see anything systematically bad with housing.”
But he said that even for companies directly in the housing market, their fate may rest more on interest-rate direction than the latest numbers on activity.
“The market is having a hard time handicapping the slowdown in the first quarter and what it means,” Lafferty said. It could be bad news for stocks in a scenario where the economy continues to struggle—but also, it could be bad news in a situation where the economy picks up again.
“If we do get that strong rebound, it puts the Fed back on a hawkish tightening path,” he said.
While he doesn’t expect a rate hike until September, Lafferty said a June increase isn’t out of the question.