January Housing Starts, Import and Export Prices and Weekly Jobless Claims

KEY DATA:  Starts: -6%; Permits: +10.4%/ Import Prices: +1.4%; Fuel: +7.4%; Exports: +2.5%; Farm: +6%/ Claims: +13,000

IN A NUTSHELL: “The economic data are all over the place, but the picture remains bright for the economy.”

WHAT IT MEANS: Well, it’s time for the good, news/bad news report.  So, let’s start with the mixed one.  Housing starts fell in January as a sharp drop in single-family activity overwhelmed a jump in multifamily building.  Still, the level of new construction remains really solid and the total number of homes currently being built is quite high.  But most importantly, permit requests soared and that means new homes should go up at a faster pace going forward.  The disconnect between starts and permits may be a function of weather.  January data are about as volatile as they get, since snow, cold and a bizarre polar vortex can often create havoc. 

The Fed wants inflation to pick up and it is starting to get what it wished for. Yesterday we saw that wholesale costs rose solidly and today it was reported that import prices surged.  Yes, fuel led the way and will probably keep doing so, given the cold and snow that has hit the country in February.  But even excluding fuel, the cost of foreign products still increased at a very strong pace. Food costs soared, prices of industrial supplies excluding petroleum jumped and vehicle costs edged upward.  But imported consumer goods prices eased a touch, so there may not be a significant rise in the inflation indices.  On the export side, there was similar prices power being shown and farmers benefitted the most.  Over the year, agricultural export prices are up over 9%, an impressive gain.

Weekly jobless claims rose solidly last week, but the headline gain hides one very important fact: The previous week’s number was revised upward by a huge 55,000.  Issues in the vehicle sector may have played a role as chip (computer not potato) shortages have been forcing shutdowns in assembly plants.  Thus, we could see that reversed when the problem is resolved.  Nevertheless, we have been stuck in a range between about 800,000 and 850,000 for four months now and that might not change dramatically anytime soon.  It is hard to see how the unemployment number can continue to decline when so many new workers are filing for government assistance.            IMPLICATIONS:Today’s data had some positives and some negative, but they don’t change the picture of an economy continuing to improve.  The uncertainty remains in the labor market.  Yes, the government keeps telling us that the unemployment rate is coming down and sometimes the decline is sharp, as was the case in January when it declined from 6.7% to 6.3%.  But at the same time, an enormous number of people are still filing for unemployment insurance.  It could be years before some industries get back near to where they had been before the pandemic hit and the nation’s unemployment rate is not likely to get back to the 3.5% unemployment rate we were at early last year for as long as a decade.  The pandemic created change that is real and lasting and with change comes winners and losers.  But the losers rarely can move from one industry or profession to another easily, so there will be an adjustment period that includes elevated unemployment rates.  But we are still in the recovery process, so the short-term looks pretty good.