Category Archives: Economic Indicators

February Import and Export Prices, January New Home Sales and Weekly Jobless Claims

KEY DATA: Import Prices: +0.6%; Nonfuel: 0%; Export Prices: +0.6%; Farm: +0.3%/ New Home Sales: -6.9%; Prices: -3.8%; Claims: +6,000

IN A NUTSHELL:  “Cold weather and the government shutdown didn’t help the housing market at all.”

WHAT IT MEANS:  The data just don’t seem to be getting better, though it is good that inflation is going nowhere.  Import prices jumped in February but that was due largely to a surge in petroleum product costs.  The increase was known but the extent of the rise was a little more than expected.  There were also higher prices for non-vehicle consumer products.  Meanwhile, food and capital goods costs were down.  Basically, the costs of imported goods are not putting a lot of pressure on consumer buying power.  On the export side, the battered farmer got a break as prices rose.  Over the year, they are still off a little.  U.S. exporters in just about all industries managed to push through price increases. 

What happens when a bitter winter and a government partial shutdown get together?  The economy tends to go into a slowdown and that is what happened for the most part in January.  New home sales tanked.  It is hard to visit a construction site when there is snow or it is so cold you don’t want to step outside.  In large parts of the nation, that is what happened.  And then there was the hit to confidence that the shutdown created, which didn’t help either.  So it should not surprise anyone that new home sales were off sharply.  Still, the year has started off on a weak note and prices are falling, another sign of softness. While inventory is building, it is due to the slowing sales as well as the additional homes for sale.    

Jobless claims rose last week and while the level remains low, it is beginning to look as if the historic lows are behind us.  That may indicate a modest softening in the job market. 

MARKETS AND FED POLICY IMPLICATIONS:  Modest inflation means the Fed can watch the economic fundamentals more closely and there are few signs the economy is picking up the steam that it lost at the end of last year.  New home sales were soft and most indicators point to a disappointing first quarter consumer spending number.  And there is no reason to think businesses will suddenly decide to use their windfall tax gains to spend like crazy on machinery, equipment, building or software.  So, I have no idea what would drive a surge in equity prices, other than the belief trade will come around.  Tariffs have been imposed but the trade deficit widened sharply even with China, so unless we suddenly embrace free trade, I don’t really see how that sector will help significantly.  As I keep saying, a recession may not be in sight, but neither is strong growth. I am leaving for the airport to go on my annual father/son Phillies spring training trip.  It’s nice to know I don’t have to potentially fly a 737 Max8 to Clearwater.  The flight should be a lot less stressful. 

February Wholesale Prices and January Durable Goods Orders and Construction Spending

KEY DATA: PPI: +0.1%; Ex-Food and Energy: +0.1%/ Orders: +0.4%; Ex-Aircraft: -0.6%; Capital Spending: +0.8%/ Construction: +1.3%; Public: +4.9%

IN A NUTSHELL:  “Despite some decent headline numbers, the data still indicate that growth is moderating while inflation remains tame.”

WHAT IT MEANS:  The Fed is trying to read the economic tea leaves before deciding on what to do next and one thing they are watching carefully is inflation.  Well, they can probably start focusing on something else.  Wholesale prices went largely nowhere in February.  Energy costs did jump, but they were largely offset by a decline in food prices.  Excluding those categories, there were few places where prices rose with any gusto.  There were some large increases in chemical products, electronic components, appliances and cable services, of course, but otherwise, producer costs we well contained.  As for the pipeline, it is largely empty.

Will demand pick up sharply enough to move the needle on inflation?  I don’t think so.  Durable goods orders rose moderately in January but that was due to a surge in aircraft demand.  Excluding planes, demand for big-ticket items fell sharply.  The measure that most closely mirrors business capital spending did jump.  But that came after very large declines in new orders the previous two months.  Even with that increase, capital spending was up only 3.1% from the January 2018 level.  Since these data are not adjusted for prices, you can see that orders are no soaring.

Despite the terrible weather, construction spending jumped in January.  But again, you have to put that into perspective.  There were significant decline in both December and November and the level of construction was still below the October pace.  In addition, just about all the gain came from a surge in public construction as private sector activity rose minimally.  MARKETS AND FED POLICY IMPLICATIONS:It’s nice to get some decent improvement in the economic indicators, but given how soft the previous data were, you cannot read too much into those increases.The rise in retail sales in January, reported earlier this week, tells us only that we ended the year on a major down beat.The December number was revised sharply lower and that may mean fourth quarter growth was slower than initially estimated.  The revision will come out in two weeks and could show growth closer to 2% and it looks like first quarter growth could be well below 2%.  Indeed, many forecasters have it closer to 1%, a pace that as of now cannot be ruled out.  In other words, the economy lost steam at the end of last year and the while the fire in the engine has not gone out, it is not roaring either.  Since inflation is also showing no signs of becoming a problem anytime soon, the Fed members will have little to do at their meetings for quite a while.  Washington in the spring is very pleasant, so I suspect they will be taking lots of walks, especially if the cherry blossoms are in bloom.  As for investors, they have little to cheer about and lots to worry about.  There is Brexit and trade, Boeing and consumer lethargy.  March Madness cannot be coming at a better time as there are now lots of game watching to be done over the next few weeks.  Since my two alma maters, Stony Brook and Brown, didn’t make the tournament (as usual), I am stuck rooting only for local Philadelphia teams.  Of course with Villanova being one of them, there is always hope.

February Consumer Prices, Real Earnings and Small Business Confidence

INDICATOR: February Consumer Prices, Real Earnings and Small Business Confidence

KEY DATA: CPI: +0.2%; Over-Year: +1.5%; Ex-Food and Energy: +0.1%; Over-Year: +2.1%/ Real Earnings: +0.3%; Over-Year: +1.9%/ NFIB: +0.5 point

IN A NUTSHELL:  “Modest inflation and tight labor markets are helping drive up worker spending power, which hopefully will keep the expansion going.”

WHAT IT MEANS:  With the world economy slowing and uncertainty about trade continuing to restrain business decision making, something needs to improve if the economy is to pick up some steam.  Well, that just may be household spending power and modest inflation is helping that along.  The Consumer Price Index rose moderately in February, led by increases in energy and to a lesser extent, gains in food, apparel and shelter costs.  On the other hand, medical goods and used vehicle prices dropped sharply, as did energy services costs.  Excluding food and energy, prices rose minimally. Over the year, consumers have had to deal with very limited inflation pressures, though they increased somewhat more moderately when food and energy were taken out of the mix.  Nevertheless, there are few signs that inflation pressures are building.

Household spending power is determined by both wage gains and inflation.  Inflation is tame; Wage gains are not.  Hourly wage costs jumped in February, rising 3.4%, the fastest pace in a decade.  When inflation was factored in, the increase is pushing 2%, something we haven’t seen in four years.  Back then, inflation was largely flat. 

The National Federation of Independent Businesses reported that small business confidence is stabilizing after having been bashed by the economic slowdown and the government shutdown.  The index peaked in August and declined consistently until it edged up in February. 
A number of categories posted increases, including general business conditions and the outlook for expansion, but earnings were still weak and sales are going nowhere.  These data bounce around and the modest rise in February may not be a signal that conditions are starting to improve.  It could just be an improvement due to the government shutdown ending.  Let’s wait a couple of months to see if this was a start of an upward trend or just a temporary rebound. 

MARKETS AND FED POLICY IMPLICATIONS:  In general, the economic data have indicated that growth moderated fairly sharply at the end of the year.  The consumer really didn’t spend a lot of money and that is not good news for future growth.  But households have more money to spend and it is not being eaten away by inflation.  That implies we should be able to sustain moderate growth in the spring.  Unfortunately, there is simply nothing out there that says the economy will accelerate sharply.   It is hard to see what could give investors the green light other than a trade agreement that is much more than puff pastry.  That puts pressure on to not only get something done, but to get a real change in the terms of trade between the U.S. and China.  If we wind up with more puff than pastry, investors may exhale for a while, but reality could settle fairly quickly.  Given all the uncertainty, the Fed is likely to make believe it is the second coming of Rip Van Winkle and go to sleep for quite a while.  The members are in no rush to move (from under the covers).