Data through mid-February are consistent with ongoing modest-to-moderate real GDP expansion in Q1 in the range of 1.5 to 2.0 percent annualized. The interpretation of January retail sales is mixed. Because retail sales last October, at the start of the fourth quarter, were weak, and we had a rebound in November and December, we can say that the level of sales in January was not bad and was consistent with moderately expanding real consumer spending for Q1. However, if we focus on the month-to-month change in sales (or near lack thereof) we have to say that January was weak. Total retail sales for January increased by just 0.1 percent, in line with expectations. It looks like tax increases and ongoing uncertainty about the debt ceiling and the spending sequester did take a toll on consumers. Also there was some giveback from the rebound in sales in November and December post-Hurricane Sandy.
The January business optimism index from the National Federation of Independent Business increased slightly to 88.9, which is still depressed. The commentary to the January index stressed the flow of bad news to business owners. The metric for small business hiring looks mildly positive, and planned hiring is on a positive trend. The Job Openings and Labor Turnover Survey (JOLTS) data for December was less positive, showing essentially flatlined job openings through 2012 and a mildly deteriorating hiring trend through the second half of the year.
U.S. industrial production dipped by 0.1 percent in January as auto production and other industries dialed back. Mining output fell 1.0 percent as drilling activity eased. Oil and gas drilling, as measured by the Federal Reserve, declined steadily through 2012, and now that has extended into 2013. Utility output rebounded by 3.5 percent in January after falling 4.5 percent in December due to mild weather. Overall capacity utilization remains stuck below 80 percent at 79.1 for January. This is a bit misleading as many industries are running at high capacity while the overall level of capacity utilization is held down by the auto sector.
The Michigan consumer sentiment numbers improved to 76.3 for early February. Consumers are feeling steadier, supported by moderate job creation, improving house prices and a bull stock market. Initial claims for unemployment insurance fell by 24,000 for the week ending February 9, to hit 341,000. What is clear in the data is that we are hitting more post-recession lows. It is not clear if the trend line is leveling (falling) or leveling (out).
The U.S. economy is limping forward through Q1. Job gains in the months ahead is the key to sustaining momentum as fiscal headwinds grow.
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