<\/p>\n\n\n\n
KEY DATA:<\/strong> Starts: -11.2%; Permits:\n+0.3%\/ Confidence: +9.7 points\/ Phil. Fed (NonMan.): +9.0 points<\/p>\n\n\n\n IN A\nNUTSHELL:<\/strong> \u201cThe wild swings in the data continue so we\nshouldn\u2019t rush to judgment on the state of the economy.\u201d<\/em><\/strong><\/p>\n\n\n\n WHAT IT\nMEANS:<\/strong> I\u2019ve been doing this for a very long time and while\nI haven\u2019t seen it all, the current data seem awfully volatile. Today\u2019s numbers continue that trend. Housing starts cratered in December, which\nwas a surprise. Yes, we knew that\nconstruction peaked in the spring, but the collapse at the end of the year made\nno sense, especially given that housing permit requests remained solid.<\/em><\/strong> Indeed, during the fourth quarter of last\nyear, permits ran nearly twelve percent above starts. Since builders stopped spec building many\nyears ago, that differential is likely to be narrowed in the months to\ncome. Of course, January is problematic\nas the weather was brutal. Basically, housing\nis likely to be stronger going forward than the data indicate, but not strong.<\/em><\/strong><\/p>\n\n\n\n Not surprisingly, consumer confidence rebounded sharply\nin February. The Conference Board\u2019s\ncurrent conditions component rose modestly but the expectations component\nsurged.<\/em><\/strong> Basically, the government shutdown ended and\nso did the total disgust with Washington. \nNow we can go back to being only disgusted with Washington. <\/p>\n\n\n\n As far as business activity is concerned, the\nPhiladelphia Fed\u2019s NonManufacturing survey rebounded sharply in February. Again, special conditions were at work. The frigid weather, coupled with the\ngovernment chaos, led to a huge drop in the index in January.<\/em><\/strong> With\nconditions improving in February, it was hardly a shock to see the current and\nfuture conditions measures jump. The\nRichmond Fed\u2019s Manufacturing Index posted a similar pattern, as activity\nrebounded in February after a January lull. <\/em><\/strong><\/p>\n\n\n\n MARKETS AND\nFED POLICY IMPLICATIONS:<\/strong> On\nThursday we get the first (and in this case second as well) reading on fourth\nquarter GDP growth. Don\u2019t expect\nanything great.<\/em><\/strong> Indeed, only a possible\nlarge increase in inventories may have kept the number from coming in below 2%. Housing should be one of those components\nthat will depress the growth rate. But\nneither consumer nor business spending look like they were stellar.<\/em><\/strong> I still think the estimate should come in\nsomewhere between 2.00% and 2.50%, but given the wild swings in the data, I am\nnot sure. Regardless, the economy is\nmoderating and we are headed back to more normal growth, which is roughly about\n2.25%. That is neither too cold nor too\nhot, which means the Fed should be able to maintain its cautious approach to\nmonetary policy.<\/em><\/strong> Indeed, Fed\nChair Powell, in his semi-annual testimony to Congress, reiterated that\ntoday. The Fed could reconsider raising\nrates, but it will take stronger growth for it to start hiking again. As I have noted before, I think that is a mistake.<\/em><\/strong> The current level of the funds rate is not\nhigh enough to provide much ammunition if the economy falters. The idea was to get back to normal. Since the Fed keeps arguing that rate policy\nis its primary tool, by failing to raise rates to higher levels when the\neconomy is in good shape, and it is, the members are betting they don\u2019t face a\nmajor recession in the relative near term. \nI hope they are correct. <\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" KEY DATA: Starts: -11.2%; Permits: +0.3%\/ Confidence: +9.7 points\/ Phil. Fed (NonMan.): +9.0 points IN A NUTSHELL: \u201cThe wild swings in the data continue so we shouldn\u2019t rush to judgment on the state of the economy.\u201d WHAT IT MEANS: I\u2019ve been doing this for a very long time and while I haven\u2019t seen it all, … Continue reading December Housing Starts and February Consumer Confidence and Philadelphia Fed\u2019s NonManufacturing Survey<\/span>