Inflation, Jobs and Housing: The Inside Scoop

It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines:

All Quiet On the Inflation Front

In January the CPI rose 0.1%, despite a 1.8% increase in electricity prices and a 3.6% jump in natural gas prices. This was a smaller increase than expected; economists had forecast a 0.2% gain. Excluding food and energy, the core CPI climbed 0.1%, also less than the 0.2% consensus expectation. In the past 12 months, both the CPI and the core CPI have risen just 1.6%. This is the lowest rate for the core CPI since last June. So officially inflation remains tame, which means the Fed is under no pressure to raise interest rates any time soon.

In January both the headline PPI and core PPI (which excludes wholesale food and energy prices) climbed 0.2%. This largely matched analyst expectations. Breaking it down, wholesale food costs jumped 1% in January while energy prices advanced 0.3%.This month’s PPI report included a significant revision. The Labor Department is now including services in its Producer Price Index, something it has never done before. Under the old PPI criteria, headline wholesale prices rose 0.6% last month while the core measure climbed 0.5%. Regardless, inflation still remains below the Fed’s 2% inflation target.

Jobless Claims Continue to Trend Downward

Last week, initial claims for unemployment fell by 3,000 to an annual rate of 336,000. Economists had predicted a 335,000 annual rate so this essentially matched estimates. Meanwhile, the four-week moving average climbed 1,750 to 338,500. The latest week’s results aren’t enough to signal a major change in layoffs, but it’s encouraging to see this measure trend downward over the long run.

Housing Recovery Slides on Winter Freeze

In January U.S. housing starts plunged 16% to an 880,000 annual rate. Economists had expected a less dramatic decline to 925,000. Building permits also retreated 5.4% to an annual rate of 937,000 coming below expectations of 975,000. Housing starts are now at the lowest level since September and have fallen 2% in the past 12 months. Unfortunately, this has caused some economists to lower their first-quarter GDP estimates. The good news is that building permits, which signal demand future down the road, are up 2.4% on the year ago period.

In January, sales of existing homes fell 5.1% to an annualized rate of 4.62 million. This is a steeper drop than anticipated; the consensus forecast had predicted a 4.75 million annual rate. Sales of single-family homes plunged 5.8% while multi-family residence sales (like apartments, condos and co-ops) remained unchanged. The inventory of homes rose from a 4.6 month supply in December to a 4.9 month supply. Unfortunately, this means that existing home sales have fallen to the lowest level since July 2012. January’s rate represents a 5.1% retreat from December levels as well as year ago levels. Clearly the severe winter weather put a damper on existing home sales, but I expect things to warm up as we approach spring.

Survey Says: Economy Continues Slow and Steady Recovery

In January the LEI advanced 0.3%, after being unchanged in December. This slightly underperformed expectations—economists had expected a 0.4% gain. Five of the 10 components improved in January, including initial unemployment claims (which are moderating), stock prices and manufacturer’s new orders. Weighing down the index were building permits, average weekly manufacturing hours and consumer confidence. In the past six months, the LEI has risen 3.2%. This is considered a healthy pace. Better still, once the spring thaw arrives, the economic data is expected to improve even more.

Have a nice weekend,

Louis Navellier

Louis Navellier

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