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.