Skip to main content
Economic & Housing Weekly Note

March Data Rebounds as Stimulus Checks Lead to a Surge in Spending

April 16, 2021

Key Takeaways:

  • Retail sales and food services surged 9.8 percent in March, the largest increase since May 2020, 17.1 percent above the level seen in January 2020, according to the Census Bureau. Sales jumped across all categories, with notable increases in sales at gas stations, non-store retailers, motor vehicle and parts dealers, and building supply stores. Sales at food services and drinking places rose 13.4 percent, now just 5.1 percent below the level seen in January 2020. Core retail sales (excludes gas stations, building supply stores, food services, and motor vehicle/parts) rose 6.9 percent.
  • The National Federation of Independent Business (NFIB) Small Business Optimism Index increased 2.4 points in March to 98.2. The share of firms planning on increasing employment grew to 22 percent, the highest level since September 2020, while the share of firms expecting the economy to improve increased, though remained negative. The share of firms planning on increasing prices was unchanged at 34 percent, the highest share since July 2008.
  • The Consumer Price Index (CPI) increased 0.6 percent in March, the largest monthly increase since August 2012. The increase was driven largely by a 5.0 percent increase in energy prices. Core CPI (which excludes food and energy prices) increased 0.3 percent, the largest monthly increase since August 2020. From a year ago, CPI jumped 2.6 percent, the fastest annual pace since August 2018, while core CPI rose to 1.6 percent.
  • Industrial production, a gauge of output in the manufacturing, utility, and mining sectors, rose 1.4 percent in March, according to the Federal Reserve Board. Both mining and manufacturing output jumped, while utilities output plummeted 11.4 percent as weather in March normalized form the extremes seen in February.
  • The University of Michigan Consumer Sentiment Index increased 1.6 points to 86.5, the highest level in a year, in the preliminary April reading. The increase was entirely accounted for by a 4.2-point increase in the current economic conditions index, which rose to 97.2, also the highest in a year. The consumer expectations index was unchanged.
  • Housing starts jumped 19.4 percent in March to a seasonally adjusted annualized rate (SAAR) of 1.74 million, the highest level since mid-2006, according to the Census Bureau. Single-family starts increased 15.3 percent to a SAAR of 1.24 million, while multifamily starts surged 30.8 percent to a SAAR of 501,000. Single-family permits rose 4.6 percent to a SAAR of 1.20 million, while multifamily starts fell 1.2 percent to a SAAR of 567,000.
Forecast Impact:

March data released this week shows a rebound in activity following the severe weather induced slump over much of February. The surge in March retail sales was likely due in part to the additional $1,400 stimulus checks being sent out after the $1.9 trillion stimulus was signed into law on March 11. Given the timing of the stimulus checks, in relation to the jump in retail sales it appeared that a somewhat larger share was spent earlier than we had expected, which suggests that Q1 consumer spending and GDP will both be modestly higher than our current forecast. While we believe April retail sales are likely to pull back somewhat, we expect they too will be strong, as consumer sentiment continues to improve and COVID-related restrictions continue to be lifted.

Coupled with the strength in retail sales, inflation measures in March also accelerated meaningfully, even discounting energy prices. The next months of year-over-year inflation measures will be misleading as data from the peak months of the shutdown enter the calculation. We expect the surge in annual rates will be temporary; however, the underlying month-over-month trend is expected to move modestly higher. Regardless, the Fed has emphasized their willingness to let inflation “run hot” in order to achieve the 2-percent target over a period of time, and so we believe these upcoming inflation numbers will not change their thinking.

In the business sector, as expected, industrial production rebounded in March as the weather normalized, and facilities in Texas were brought back online after having shutdown in February. The increase in the share of small business planning to increase employment is a positive sign for the labor market and coincides with several states lifting or loosening restrictions as the pace of vaccinations improves further.

In housing, while much of the month's construction strength reflects the delayed start of projects that would have likely occurred in February if not for extremely cold weather, the underlying trend in housing starts remains strong. While homebuilders continue to face supply constraints, including increasing prices of lumber and other materials, the extremely tight supply of existing homes for sale and an elevated level of new homes sold but not yet constructed will help bolster a strong construction pace moving into the spring buying season.


Ricky Goyette
Economic and Strategic Research Group
April 16, 2021

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.