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Last week’s data covered wide slices of the economy and was generally weak, while the week ahead will be a slow one. Let’s take a closer look at the numbers.
Last week’s news
On Wednesday, the consumer prices report rose more than expected. The headline inflation rate, which includes food and energy, was up from a 0.2-percent increase in December to a 0.5-percent increase in January, on rising gasoline and natural gas prices. On an annual basis, headline inflation also was above expectations. It stayed flat at 2.1 percent against an expected decline to 2 percent, due to base effects from a year ago. Core prices, which exclude food and energy, also rose by more than anticipated, with an increase of 0.3 percent in January. December’s increase, however, was revised down to 0.2 percent from 0.3 percent, so overall prices came in as expected. The annual core inflation rate also stayed constant at 1.8 percent, above expectations of 1.7 percent. These figures are in line with current performance and suggest that while inflation may be rising, the trend does not appear to be accelerating yet.
Also on Wednesday, we got the retail sales report, which disappointed. The headline number, which includes autos, dropped from an increase of 0.4 percent in December to a decline of 0.3 percent for January. This result was well below the expected 0.3-percent growth rate, on auto sales declining as the post-hurricane replacement sales wind down. Core retail sales, excluding autos, were flat for the month—well below expectations of a 0.5-percent gain in January. Plus, the December growth was revised down from 0.4 percent to 0.1 percent. Even worse, spending was inflated by higher gasoline prices, which suggests actual spending growth was even weaker. While this is a disappointing report, it comes after a very strong fourth quarter and may well represent a normalization of demand, rather than something worse. That said, it will bear watching going forward.
The industrial production report, released on Thursday, also did worse than expected. The December growth rate was revised down from 0.9 percent to 0.4 percent, while the January number came in at a decline of 0.1 percent—well below expected growth of 0.2 percent. Although worse than expected, the decline is likely due to more normal weather, as last month’s increase was largely from higher utilities output caused by the unusually cold temperatures. As with retail sales, this weak result follows a very strong fourth quarter and might just be normalization. As such, while worth watching, this indicator is not yet a concern despite the decline. Manufacturing output growth was also weak, from 0.1-percent growth in December to flat for January, despite gains in vehicle production.
Turning to the housing sector, the National Association of Home Builders survey was released on Thursday. As expected, it stayed at a strong 72, which is consistent with continued growth. On Friday, housing starts, which declined in December to an annual rate of 1.19 million, rebounded in January to a rate of 1.325 million, well above the expected gain to 1.23 million.
Finally, on Friday, the University of Michigan consumer confidence survey rose from 95.7 in January to 99.9 for February, well above the expected small decline to 95.5. Strong job growth continues to support this index, and the recent stock market pullback was apparently not a concern. Higher confidence could also help alleviate the pullback in retail sales.
What to look forward to
The week ahead will be a slow one for economic data.
The only real news will be the release of the minutes of the last meeting of the Federal Open Market Committee. Markets will be looking for confirmation that the Fed expects to hike rates by another 25 basis points at the March meeting. The statement from the January meeting was relatively optimistic, so the minutes should provide some color as to how many participants shared that view.
I am on vacation this week, and so will leave the blog in the capable hands of my colleagues. Have a great week!
