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Last week was a busy one on the economic front, but several reports were not released due to the government shutdown. As such, I will report on expectations, but we won’t know how the actual data has come in until the government reopens. Where possible, I will comment on anything we do know.
Last week’s news
On Tuesday, the producer prices report was released. The headline index, which includes energy and food, dropped by 0.2 percent for December. This result was below expectations and down from a 0.1-percent increase in November on declines in gasoline and commodity prices. As expected, the annual change stayed steady at 2.5 percent, on base effects, indicating that longer-term inflation pressures remain elevated above the Fed’s target range but may be moderating. The core index, which excludes energy and food, declined by 0.1 percent for December. This number was well below the expected growth of 0.2 percent and down from 0.3 percent for November, and the annual figure dropped from 2.9 percent in November to 2.7 percent in December, also on base effects. Although this sustained figure above 2 percent will keep some pressure on the Fed to raise rates, the declines may support a slower pace.
On Tuesday, the retail sales report was due, but it will not be released until the end of the federal government shutdown. It was expected to show faster growth, rising from 0.2 percent in November to 0.3 percent in December. Core retail sales, which exclude autos, were expected to be steady, with expected December growth of 0.2 percent. There may be some downside risk to these numbers, with the fading of the tax cut boost and recent turbulence in financial markets.
On Wednesday, the National Association of Home Builders survey bounced back slightly more than expected, rising from 56 in December to 58 for January, after a large drop over previous months. The housing starts report, which was scheduled to be released on Thursday but was not due to the government shutdown, was expected to drop slightly, from 1.256 million to 1.253 million annualized. Here, the survey results and building permit data suggest the final result might be better than anticipated. Overall, if these figures come in as expected, they would suggest the housing slowdown may be moderating.
On Friday, the industrial production report came in as expected. It pulled back from a downwardly revised gain of 0.4 percent for November to a still healthy gain of 0.3 percent for December, above the expected 0.2-percent gain. It would have been even better except for weak utilities output on warmer-than-usual weather. Manufacturing did even better, with growth rising from flat in November to growth of 1.1 percent for December, well above the expected 0.3 percent, on a surge in vehicle manufacturing. Even without that surge, growth was still at 0.8 percent, suggesting that U.S. manufacturing continues to grow despite global weakness.
Finally, the University of Michigan consumer confidence survey, also released on Friday, showed a drop that was much larger than expected. It went from 98.3 for December to 90.7 for January, well below the expected 96.8. This remains a high level, historically. But the size of the drop suggests that consumers are starting to be concerned about multiple issues, including the government shutdown and the trade war, despite the continued strong labor market and decline in gas prices.
What to look forward to
As with last week, several of the scheduled reports are prepared by government agencies currently affected by the shutdown and will not be released until the government reopens. This would be a slow week anyway. But with the shutdown, it will be especially slow.
On Tuesday, the existing home sales report did worse than expected. It dropped from 5,330,000 in November to 4,990,000 in December, well below the expected 5,240,000. This result suggests continued weakness in the housing market and is consistent with declining consumer confidence and housing affordability.
On Friday, the durable goods orders report will not be released, but the numbers are expected to improve. For the headline number, which includes the very volatile aircraft sector, growth is expected to rise from 0.8 percent in November to 1.5 percent in December. Here, there is significant upside risk based on increases in orders for planes. The core number, which is a much better economic indicator, is also expected to rise, from a decline of 0.3 percent in November to a gain of 0.2 percent for December. This result would indicate that business investment may be moderating but continues to expand.
Also on Friday, the new home sales report is scheduled, but it will not be released due to the shutdown. No estimates are currently available as to expected results.
Have a great week!
