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:
Signs of Economic Momentum—Industrial Production
In February, U.S. industrial output increased 0.6%, significantly higher than economist expectations of a 0.1% gain. Manufacturing output, which accounts for three quarters of industrial production, rose 0.8% last month, while mining production rose 0.3% and utilities output fell 0.2%. Meanwhile, industrial capacity utilization increased to 78.8% from 78.5% in January. This was the largest gain in U.S. manufacturing output in six months, the latest sign that the economy is gaining momentum after the unusually cold winter that caused some sluggishness in most of the economic signals.
Frigid Temps, Luke Warm Data
In February, U.S. housing starts slipped 0.2% to a seasonally adjusted annual rate of 907,000 units. Economists had expected for starts to climb slightly to 915,000. However, building permits increased 7.7% in February to a 1.02 million unit pace. This is the third straight month that housing starts have fallen, largely due to the cold weather as groundbreaking plunged 37.5% in the Northeast last month due to the frigid temperatures. The good news is that building permits, which signal demand future down the road, are rebounding after the pullback this winter.
No Inflation Worries Here
In February, the CPI rose 0.1% as a drop in gasoline prices offset the largest rise in the cost of food in two and a half years. This was a smaller increase than expected; economists had forecast a 0.2% gain. Excluding food and energy, the core CPI also climbed 0.1%, less than the 0.2% consensus expectation. In the past 12 months, consumer prices were up only 1.1%, slowing from a 1.6% rise in January. The February increase was the smallest in four months, and it’s clear that officially inflation remains tame, which means the Fed is under no pressure to raise interest rates any time soon based off inflation levels.
When Down is Good—Unemployment
On a week-to-week basis, jobless claims are volatile, so one of the best ways to track this measure is to look at the four-week moving average. It usually takes a jump or decline of at least 30K claims to signal a meaningful change in job growth. Last week, initial claims for unemployment rose 5,000 last week to a seasonally adjusted annual rate of 320,000. Economists had expected a 330,000 rate, so this was a bit lower than expectations. Meanwhile, the four-week moving average fell 3,500 to 327,000, the lowest since late November. Hiring picked up in February after two months of lackluster job gains due to cold weather, and I remain focused on the four-week moving average as the best barometer of the job market.
Also Impacted By Weather…
In February, sales of existing homes fell 0.4% to an annualized rate of 4.6 million, continuing the sharp 5.1% drop in January. This was right in line with the consensus forecast. However, in contrast to past months, inventory actually rose 6.4% to two million homes available for sale, about a 5.2 month supply at the current sales place. Once again, we can likely blame the cold weather in the Northeast for the lackluster home sales, as well as a low inventory and rising home prices as the median existing home price rose 9.1% year-on-year in February to $189,000. However, I expect things to warm up now that we’re finally in spring.
Index of Leading Economic Indicators (LEI)
In January, the LEI advanced 0.5% in February, after a 0.1% rise in January and a 0.1% decline in December. This was the biggest gain since November and better than expectations as economists had forecast a 0.3% gain. Five of the 10 components improved in February, led by a jump in building permits and the spread between short- and long-term interest rates. However, weaker consumer confidence did weigh on the index. All told, this was a solid report. Better still, once the spring thaw kicks into gear, the economic data is expected to improve even more.
Have a nice weekend,