We saw more mixed data this week and a growing consensus that the Fed will not lift interest rates in June.
After a three-month decline, retail sales increased by 0.9 percent in February, driven by retail sales of autos which increased by 2.7 percent. Unit sales climbed back up to a 17.2 million unit annual rate. Sales outside of autos were generally positive but unspectacular.
The University of Michigan Consumer Sentiment Index increased in early April to 95.9.
Price indexes are normalizing as oil stabilizes (relatively) near $50 per barrel. The Producer Price Index for final demand increased by 0.2 percent in March. The energy price sub-index for final demand goods gained 1.5 percent for the month, the first increased since last June. On a year-over-year basis, the PPI for final demand is still negative, down 0.8 percent. But as long as oil does not take another turn south, year-over-year comparisons will turn the corner and head north soon.
According to AAA, today’s national average regular gasoline price is $2.43 per gallon, a penny above where it was a month ago. The CPI energy index for March was up 1.1 percent, supporting a 0.2 percent gain in the headline CPI. Excluding food and energy, the core CPI for March was also up 0.2 percent. Over the last 12 months core CPI is up 1.8 percent.
Builders are expecting to see increased activity this spring according to the National Association of Home Builders, whose Builder Confidence Index increased in April to 56. However, increased confidence of builders didn’t add much to the March construction data, which still may have been impaired by weather. Housing starts for March gained 2.0 percent to hit an annual rate of 926,000 units, below market expectations. Permits for new construction eased by 5.7 percent to a 1,039,000 unit annual rate. The Federal Reserve’s Beige Book for April, tells of generally improving residential real estate activity across most Federal Reserve Districts.
The Conference Board’s Leading Economic Index increased by a sluggish 0.2 percent in March. Residential building permits were a big negative for the leading index in March. However, we expect to see permits increase through the spring, and that will pull the overall leading index up in the months ahead. The coincident and the lagging indexes also increased in March.
The National Federation of Independent Businesses said that their Business Optimism Index fell 2.8 points in March to 95.2. The overall trend is this survey remains positive.
Total business inventories were up a modest 0.3 percent in February after no change in January. It looks like inventory accumulation will be a drag on first quarter real GDP growth. Also, the inventory/sales ratio has been climbing since the middle of last year.
Firmer inflation metrics at both the consumer and producer levels will give the Federal Reserve a little more confidence in timing its first interest rate hike this year. Softer employment and production data through March has decreased the likelihood of a fed funds rate increase in June. But normalizing inflation, and improving employment and production data through mid-year keeps July or September in play. We expect to see the first increase in the fed funds rate announced on September 17.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 04-17-15.