Monday Update: Plenty of Data This Week

Last week was light on economic data, and what news there was didn’t really move the needle. The recovery continues but at a slow pace, with improvements in sentiment moderating even as the fundamentals continue to get better.

A look at last week’s news

Trade deficit narrows. Tuesday’s international trade report showed that the trade deficit improved from a downwardly revised $45.7 billion to $44.3 billion, beating expectations of $45.2 billion. Although this confirms that trade hindered fourth-quarter growth, that drag should now have passed as the distortion in the second half of last year has rolled out of the data. More good news included a rise in exports of 2.7 percent, the most since September 2012.

Consumer confidence still healthy. Friday saw the release of the University of Michigan Consumer Confidence survey. As expected, it showed a small decline for February, from 98.5 to 95.7, but remains at very healthy levels, with only five higher readings in the past decade. The positive longer-term trend also remains intact, even as current levels moderate.

The week ahead

Though last week was slow, there is a lot more going on this week.

Consumer price data for January will be released on Wednesday, with inflation expected to continue to increase by 0.3 percent on the month but to accelerate to 2.4 percent for the year, based on higher energy prices. Core price inflation, however, which excludes food and energy, should remain in line with the previous month, with an increase of 0.2 percent on the month and 2.2 percent for the year. With the inflation rate just above the Federal Reserve’s target but reasonably constant, this result should not impact future rate decisions.

Also on Wednesday, we’ll see the retail sales report for January. The headline index is expected to have increased by 0.1 percent, down significantly from 0.6 percent the previous month, primarily due to a drop in car sales. That drop, however, would be of limited concern, coming off of an 11-year high. Core retail sales, excluding autos, are expected to do much better, growing by 0.4 percent, up from 0.2 percent the previous month on a surge in consumer confidence and continued improvement in the jobs market, suggesting the consumer remains on track as a driver of economic growth.

The industrial production report, also due on Wednesday, should show a similar mixed but generally positive picture for industry. The headline number is expected to drop back from growth of 0.8 percent to flat, as utility output declined on warm weather in January. Manufacturing output growth, however, is expected to rise from growth of 0.2 percent to 0.3 percent, continuing the recovery in that sector.

On Friday, we find out about the housing sector:

• The National Association of Home Builders survey is expected to tick up slightly, from 67 to 68, recovering some of the previous month’s decline and remaining at very high levels.
• Housing starts are expected to remain essentially flat, up slightly from 1.226 million to 1.23 million—also a very high level, as single-family home permits recently reached a nine-year high.

The other economic news this week will be Fed Chair Janet Yellen’s semiannual testimony to Congress on Tuesday and Wednesday. I’ll be watching to see whether she remains confident in the economy, as well as for any hints about changes to the Fed's expectations for rate increases and how it manages its portfolio of assets.

Have a great week!