Will the economy thaw as quickly as the weather?

INDICATOR: March Consumer Confidence and February New Home Sales

KEY DATA: Confidence: 82.3 (up 4 points); Expectations: up 7 points/New Home Sales: -3.3%

IN A NUTSHELL: "The winter may have frozen out home sales but consumers seem to be warming to the prospects of better times ahead and that bodes well for future growth."

WHAT IT MEANS: It was supposed to snow today but at least in my outpost just outside Philadelphia it didn't. That makes me smile. I suspect a lot of others are hopeful that the winter will finally end as the Conference Board's Consumer Confidence Index was up in March. Yes, the reading on current conditions was down, especially as far as business conditions go, but the future looks a lot brighter. The expectations index soared with respondents expecting both business activity and the labor market to improve.

While smiles are beginning to appear on the faces of consumers, that is hardly the case when it comes to builders and realtors. New home sales fell in February, wiping out a solid increase that was posted in January. Is it the weather or rising prices that is at work? One hint comes from the regional details. Demand in the Northeast fell by one-third, sales in the Midwest were up nearly 37% while in the West they were off almost 16%. Can you say volatility? Large changes in home purchases over the month are not unusual but not at these levels and not across the country. Only in the South, which posted a modest 1.5% drop, was there some semblance of sanity. The housing market is softening, though, and that can be seen in the price data. The S&P/Case-Shiller index declined modestly in January, its third consecutive drop. Overt the year, prices are still up over 13%. While the Federal Housing Finance Administration's Home Price Index posted a modest increase, it too is signaling a deceleration in the price increases we had been seeing.

MARKETS AND FED POLICY IMPLICATIONS: It could be months before we really know how the winter affected the economy and what really is the baseline growth rate. If housing and consumer spending rebound, we could see increases that are unreasonably high, so we would have to wait until those artificial numbers wash out. But the improvement in consumer attitudes is critical to future growth and if people think conditions will get better, they are more apt to spend. Thus, I expect that while first quarter growth could be soft, the second quarter could easily be above 4%. That means we really may not know how fast the economy is growing until the summer. The key will be job gains and whether a declining unemployment rate starts putting upward pressure on compensation. If that happens, and I expect it will during the second half of the year, then growth will accelerate and so will the Fed's need to raise rates. As for the markets, investors seem to dislike the Russian invasion but not enough to want anything done about it that might affect their portfolios. Thus, when it looks like the sanctions could hurt the Russian economy, the markets go down. When the impacts don't seem to have much bite, they rise. The worst thing coming out of this is that Congress seems to think it must do something. And when Congress reacts to a crisis, we usually pay for the policies put into place for decades.