KEY DATA: Sales: -3%; Ex-vehicles and gasoline: -3.3%/ IP: -2.2%; Manufacturing: -3.1%/ Import Prices: +1.3%; Nonfuel: +0.4%; Exports: +1.6%; Farm: +2.9%/ NAHB: -2 points
IN A NUTSHELL: “The polar vortex froze the economy in February.”
WHAT IT MEANS: We knew the economy took a major hit in February due to the brutally cold weather and a lot of snow. All you had to do was look at the mess in Texas to know that the data would be ugly. But it was even worse than expected. Let’s start with retail sales, which cratered over the month. About the only component that showed any gain was gasoline stations, and that was likely due to a sharp rise in prices. Grocery store purchases edged up minimally. Lots of hot chocolate sales (or in my case, Entenmann’s chocolate covered donuts). Otherwise, the numbers were not only bad but truly awful. We didn’t even shop online as nonstore sales plummeted over 5%. It is easy to explain the lack of sales for any store that you actually had to visit, but it is lot harder to understand why people didn’t just get their shopping done at the computer. Despite the massive pull back, the level of sales was the second highest on record, exceeded only by the record-setting January total.
February also saw a major drop in industrial production, especially in the manufacturing sector. Both durable and nondurable goods production took a big hit. Nine of the eleven durable goods sectors and seven of the eight nondurable components posted negative numbers. The greatest decline was in the vehicle sector, which cut output by 8.3%. Lots of issues going on there. But the frigid weather did lead to rise in utility production – at least outside Texas.
The Fed started its two-day meeting, and it will be interesting to see what the members say about inflation. We have seen consumer prices consistently accelerate, supported by sharp prices increases in the underlying goods costs. Today’s ugly inflation price numbers were in the imports of most products, not just energy. Much of the increase was in nonfuel industrial supplies and materials as well as foods. On a positive note, the rises in capital and consumer goods and vehicle prices were more moderate. Over the year, nonfuel import costs increased nearly three percent and some of that has to bleed into consumer prices. As for exports, farmers much be celebrating. The prices of products they are selling to the rest of the world is skyrocketing. The housing market is starting to come back to earth, after having shot into near-earth orbit in December. The National Association of Home Builders’ Index eased back in February, but the level is still extraordinarily high. It’s just that conditions starting in July were otherworldly and right now, they are just robust. Hard to complain about that. Looking forward, traffic is just below its record high and that points to continued strength in the housing market.