Future Unconfidence
March 28, 2025 -- It's hard to find a word to describe a feeling where things seem pretty okay at the moment -- not great, but okay -- but where the outlook is murky at best. "Apprehensive" works, but it doesn't feel quite right; "foreboding" feels too dark, and "uncertainty", well, the future is always uncertain. So "unconfidence" it is, an awkward word but one that seems to befit what feels like an awkward, unsettled time.
Among other places, we see this reflected in surveys of consumer moods. The March update on Consumer Confidence from the Conference Board slumped, as the headline value fell by 7.2 points to 92.9, its lowest point since January 2021. However, the underlying components reveal unevenness between assessments of the present and the future; the "present conditions" component edged lower by just 3.6 points to 134.5, about a six-month low. However, the expectations component dropped 9.6 points to just 65.2, the lowest it has been in 12 years. Inflation concerns continue to press higher, and the 6.2% increase expected in prices over the next year returned to about a two-year high, while plans for buying high-ticket items remained low.
A nearly identical message was seen in the final March report covering Consumer Sentiment. The University of Michigan poll's top-line figure retreated by 7.7 points to a flat 57, its lowest level since November 2022. However, as with Confidence, it's all about the future; current conditions were assessed to be only somewhat less good, with this measure slipping by 1.9 points to 63.8, back to about where it was before the presidential elections. As with the Confidence survey above, the outlook component dropped more considerably, falling 11.4 points to just 52.6 and retreating to a 32-month low. Near-term inflation expectations continued upward, with the present one-year forecast of a 5% increase the loftiest since November 2022, while the 5-year outlook for cost increases hit 4.1%, the highest since perhaps 1993.
Near term, consumers are likely still feeling fairly confident since the job market is solid and incomes are growing, although there are concerns about both of these. Personal incomes rose by a stout 0.8% in February as wage growth re-accelerated to a 0.4% gain during the month. Rising wages were joined by other supports, too, as small-business incomes firmed up by 0.1%, receipts on investment assets improved by 0.4% and rental incomes by 0.9%. That said, it was government transfer payments that boosted the top-line figure for a second consecutive month, as they increased by an outsized 2.2% for the period.
While income improved in February, outgo did not. We learned last week that retail sales were improved-but-soggy 0.2% in February, while the personal incomes report improved on that as overall personal consumption expenditures rose by 0.4%, so increase in outgo were about half of the gains in income last month. As such, this left more funds available for reserves, and the nation's rate of savings rose to 4.6%, an eight-month high. While banking more funds is almost always a good thing, spending less today to have money available for a future "rainy day" can also be an expression of concern about the outlook.
Present-day price pressures are also eroding some purchasing power, too. The overall Personal Consumption Expenditure (PCE) price index rose by 0.3% in February, a third consecutive such reading, and the annual rate of PCE inflation failed to improve, holding at 2.5% through February. Core PCE inflation -- the Fed's preferred yardstick -- rose by 0.4%. This was the largest monthly increase since January 2024, lifting the annual rate of core PCE prices back up to 2.8%, another step away from the Fed's goal. For the month, goods prices rose by 0.2% while service costs increased by 0.4%. Neither is moving in a hoped-for direction at the moment.
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It's the start of the spring housing season, and too early as yet to know how it will all turn out. There is at least some reason to think that some homeowners have become accustomed (resigned?) to mortgage rates in the mid-to-upper sixes and so have decided to move into the market, and also some signs that somewhat more folks are putting their homes up for sale, too. To that end, we see that despite increasing builder blues of late, sales of new homes managed to increase by 1.8% in February, rising to a 676,000 annual pace. While not much to get excited about, new home sales have been running roughly at pre-pandemic levels for a while, most likely due to solid availability and prices very competitive against the existing home market. In February, there were 9 months of supply of new homes available at the present rate of sale, some 500,000 units of supply, the most since November 2007. The median price of a new home sold last month was $414,500, down from $427,400 in January and about 1.4% lower than a year ago (not to mention about 10% below October 2022's all-time peak). Contrast this against what's happened with prices in the existing home market, which seem on pace for a new record high again this year.
Existing home sales should see a bump in the next month or two, if the 2% increase in the National Association of Realtors Pending Home Sales figure for February proves out. A couple of monthly declines in this measure of signed contracts that bridged the end of 2024 and early 2025 provided scant indication that a 4.2% increase in sales would come in February, but it did. As such, we'll have to wait to see if this early indicator of an increase home sales bears out come March or April.
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Orders for durable goods kicked higher in February. The 0.9% increase added to a 3.3% rise to start 2025 but was less broad-based than January's figure. The so-called core measure of durable goods orders (no military spending and no aircraft orders included) actually declined by 0.3%, breaking a three-month string of gains. It's still not clear if the spate of recent orders is due to businesses looking to front-run future increases in tariffs and so presages a future slowdown or if there's actual solid underlying demand driving them. Whatever the reason, manufacturers are likely glad to have them coming in.
Two more regional looks at factory activity were available this week, and were mixed at best. Readings from surveys conducted by the Federal Reserve Banks of Richmond and Kansas City were about equally soft; the Richmond Fed's Fifth District barometer posted a -4 value for March, down from +6 in February. Orders last month were flat; this month, the -4 value for this component suggests modest softening. The employment metric softened more considerably, falling from +9 in February to -1 for March. Conversely, there was firming in the prices paid index, which moved from 2 last month to 4 in this one, the highest value for this component since last June.
Out in the nation's heartland, the Kansas City Fed's similar gauge showed roughly similar results. The overall measure of activity improved a little, rising from -5 in February to -2 for March, but was still underwater. New orders dropped back further, falling 5 points to land at -12, while employment conditions were somewhat more favorable after a 10-point climb to land at -4. Like the Richmond (and other) surveys, input prices have risen; the prices paid portion of the report moved up six ticks to 42, its loftiest mark since September 2022.
It'll be another month before we see how GDP turned out in the first quarter of 2025. The fourth quarter of 2024 was a pretty solid one, as the final look at GDP for that period showed that economic growth expanded at an upwardly-revised 2.45% annualized rate. While this was down from 3Q24's 3.07% pace, it was certainly solid enough and much closer to the economy's actual "potential", or ability to grow without becoming imbalanced. For the period, PCE prices came in at 2.4% (up from 1.5% in the third quarter) and core PCE at 2.6% (from 2.2%). Unless there is or was a deceleration in prices during March, it seems likely that both headline and core PCE for the first quarter will be higher.
While inflation for the current period may be higher, the running rate for GDP for the period indicates that growth will be lower. The Federal Reserve Bank of Atlanta's GDPNow model suggests the economy contracted at a 2.8% clip for the first quarter, at least from the data incorporated into its calculation so far (about a month's worth of data is yet to be included). The Atlanta Fed also released a version that excludes the impact of gold imports and exports, which may be distorting the model's readings. While this measure too shows a decline for the period, it's a much milder -0.5% through March 28 and may be more reflective of actual trend growth.
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By the measure of the Chicago Federal Reserve's National Activity Index, February was a fairly solid month, as this amalgam of 85 economic indicators produced a value of 0.18 for the period, a fair improvement from the -0.08 start to 2025. Using a par value of zero, the NAI seeks to show if the economy is growing at a pace above or below its potential, and by this measure, it did so mildly during February. "Potential" can be a moving target, but is thought to be perhaps a GDP of as high as 2.4%, although it may be somewhat more or less. By way of reference, the three-month moving NAI values for October through December produced a -0.06 rate for the period, and growth came in at 2.4% per the GDP report.
Less ambiguous is the report covering requests for mortgage credit. The Mortgage Bankers Association reported a 2% decline in them in the week ending March 21, a second straight fall. Applications for funds to purchase homes continue to have support, with a 0.7% increase a fourth consecutive weekly gain, while those to refinance existing mortgages continued to drift downward (-5.3%) after a brief rate-decline-induced burst of activity a few weeks ago.
It's hard to fathom it, but the calendar turns April next week and brings the usual first-week-of-the-month slew of labor market data. From what can be gleaned from them, initial claims for unemployment assistance don't seem to suggest any serious deterioration in labor market conditions. In the week ending March 22, 224,000 first-time claims for unemployment benefits were filed, down 1,000 from the prior week. Over the last four weeks, initial claims have been at a virtual standstill, hopefully suggesting that overall labor-market conditions remained solid for the month, and that rising uncertainty and wait-and-see stances among businesses haven't slowed job creation or portend rising layoffs.
Current Adjustable Rate Mortgage (ARM) Indexes
| Index | For The Week Ending | Year Ago | |
|---|---|---|---|
| Mar 21 | Feb 21 | Mar 22 | |
| 6-Mo. TCM | 4.28% | 4.33% | 5.37% |
| 1-Yr. TCM | 4.09% | 4.20% | 5.02% |
| 3-Yr. TCM | 3.97% | 4.27% | 4.44% |
| 10-Yr. TCM | 4.27% | 4.50% | 4.28% |
| Federal Cost of Funds |
3.666% | 3.673% | 3.889% |
| 30-day SOFR (daily value) | 4.33969% | 4.35201% | 5.31864% |
| Moving Treasury Average (MTA/12-MAT) |
4.574% | 4.635% | 5.088% |
| Freddie Mac 30-yr FRM |
6.67% | 6.76% | 6.79% |
| Historical ARM Index Data | |||
Certainly, that's the crux of the matter: discomfort about what lies ahead, and whether or not fear, doubt and uncertainty will lead to less positive economic outcomes, both broadly and more intimately. What's less clear is whether unconfidence about the future will pass without inflicting damage, or whether it starts to morph into something more. If the more sour tenor of the "soft" data of late starts to show up in a more meaningful way in the "hard" data there may be challenging times ahead.
The future, as always, remains uncertain, perhaps more so at the moment, given the level of upheaval in trade, tariff, immigration polices and perhaps a reshaping of the size and scope of the federal government. It's hard to know what to expect from the changes put in place today, let alone whatever changes to them or any wholly new or different ones likely to come tomorrow. Until there is greater clarity, there will continue to be considerable uncertainty about what the near (and longer term) future holds. Perhaps like some participants in the housing market, we'll come to become accustomed (or resigned) to this feeling of unconfidence.
As far as mortgage rates go, the influential yields that dictate mortgage pricing were generally climbing all week, but reversed course on Friday as stock markets sold off and investors shifted funds to relative safety. That one-day (so far) rally probably isn't sufficient to keep mortgage rates from rising modestly next week, when we expect to see a three or four basis point increase in the average offered rate for a conforming 30-year fixed-rate mortgage as reported by Freddie Mac. Since it's the future, this outlook is also tempered by a bit of unconfidence.
Can mortgage rates find any space to decline meaningfully as we head into the spring housing season? See what we think in our latest Two-Month Forecast for mortgage rates covering late February through late April.
See our new 2025 Mortgage and Housing Market Outlook, covering mortgage rates, housing conditions, the Fed and lots more.
Also, for a really long-run outlook, you'll want to review "Federal Reserve Policy and Mortgage Rate Cycles".
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