U.S. Economy This Week, March 18, 2025: Not Good
Economic indicators suggest the U.S. economy is slowing down. Ph.D. economist Bob Genetski guides you through with a quick, commonsense analysis.
Guest post by economist Robert Genetski, Ph.D.
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The most important development last week was the House approval of the Continuing Resolution H.R.1968. It provides Congress’ approval for OMB Cabinet Secretaries and DOGE to reduce federal programs involving fraud and abuse. When it passes the Senate, spending and tax cuts will have the approval of Congress.
February’s CPI report provided good news on inflation. The monthly annualized changes were 2.6% for the total and 2.75% for core. Year-over-year, the rates were 2.8% and 3.1% respectively.
We expect inflation to continue to wind down to the Fed’s 2% vicinity by the latter half of this year. If significant tariffs are placed on the economy, expect a one-time increase taking inflation temporarily up to the 3% vicinity.
Thursday’s wholesale price data were also good news. Prices for final demand were unchanged while core prices rose only 0.2%, 2.4% annualized.
The bad news for the week came from Treasury’s February monthly budget report. For the first five months of fiscal year 2025, beginning October 1, 2024, tax receipts were up 2%, federal spending up 13%, and the deficit up 38%, compared a year earlier. The annualized deficit for the five months was $2.7 trillion, well above CBO’s January, 2025 estimate of $1.8 trillion.
The need for massive cuts in spending is greater than ever.
This Week
Monday’s National Association of Home Builders (NAHB) report for early March was significant. The decline in mortgage rates the past month should have improved the prospects for new homes. The February Index was at 42, well below a break-even reading of 50. We expected the March reading to be in the upper 40s. Instead, it fell by three points, to 39.
Builders are still cutting prices, the NAHB reported:
The latest HMI survey also revealed that 29% of builders cut home prices in March, up from 26% in February. Meanwhile, the average price reduction was 5% in March, the same rate as the previous month. The use of sales incentives was 59% in March, unchanged from February.
Housing starts increased in February, however, after a drpressed January, as U.S. News and World Report noted:
New residential construction increased 11.2% to an annualized rate of 1.5 million in February, according to government data released Tuesday. The pace exceeded all forecasts in a Bloomberg survey of economists.
New construction of single-family homes rose 11.4% to an annualized 1.11 million rate, the fastest in a year. Multifamily housing starts climbed 10.7% after plunging nearly twice that much a month earlier.
The figures point to a rebound from a weak January when inclement winter storms blanketed large parts of the South and Northeast. Building activity snapped back in those regions last month, while starts were more moderate in the West and dropped in the Midwest.
The government also reported retail sales declined in February. CNN reported,
Spending at US retailers last month was much weaker than expected, in a troubling sign that the American shopper could be starting to tap out.
Retail sales rose 0.2% in February from the prior month, the Commerce Department said Monday, up from January’s downwardly revised 1.2% decline. That was much lower than the 0.7% increase economists projected in a FactSet poll. The figures are adjusted for seasonal swings but not inflation….
Spending last month declined the most at department stores (-1.7%), restaurants and bars (-1.5%) and at gasoline stations (-1%). Meanwhile, sales were up online and at health stores, rising 2.4% and 1.7%, respectively.
Monday’s report, however, wasn’t all bad news: Excluding sales at gas stations, car dealerships, of building materials and at restaurants—referred to as the “control group”—retail spending rose 1% in February on a monthly basis, according to the report, fully recovering from the 1% decline in January. That came in better than the 0.4% gain economists projected.
On Wednesday, expect the Fed to keep its target interest rate at 4.3%. It also will reveal whether it will continue to sell securities, which tightens the money supply. The Fed has never provided any rationale for reducing its portfolio to some undisclosed ideal size.
We hope the Fed will stop selling (or buying) securities for the time being and thereby stop further distorting the direction of its monetary policy.