Mixed Data Consistent with Modest-to-Moderate Expansion in Q1
- Industrial Production for January decreased by 0.1 percent as motor vehicle output dipped.
- University of Michigan Consumer Sentiment increased in early February to 76.3.
- Initial Claims for Unemployment Insurance fell by 24,000 for the week ending February 9, to 341,000.
U.S. industrial production slipped by 0.1 percent in January as auto production and other industries dialed back. Total manufacturing output declined by 0.4 percent after expanding through November and December. Auto assemblies declined from the solid 10.95 million unit annual pace in December to 10.35 in January, still above the average for all of 2012. Improving consumer sentiment is good news for future auto production. Mining output fell 1.0 percent as drilling activity eased. Oil and gas well drilling, as measured by the Federal Reserve in the industrial production tables, 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. Still, there appears to be enough slack in industrial capacity and in labor markets to keep “demand-pull” inflation (as opposed to “cost-push”) to a minimum.
The Michigan consumer sentiment numbers are improving. Consumer sentiment fell sharply in December as Fiscal Cliff worries intensified. January saw a slight increase even as other measures of consumer confidence fell. The early indication in February is that consumers are feeling steadier, supported by moderate job creation, improving house prices and a bull stock market. The latter two factors are supported by the Federal Reserve’s open-ended QE program. So we can appropriately ask the question “what happens when QE stops?” The housing market is still supported by improving fundamentals, so a mild increase in mortgage interest rates, as QE ends, may not be a major drag. The stock market appears to be more vulnerable to correction as the QE caffeine is reduced. For now households appear to be sipping their coffee and forging ahead with the support of moderate job creation. 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 out or if there are more lows left to come. During the “build-baby-build” years of 2005-2006, initial claims hovered around 320,000 per week, perhaps not attainable on a sustained basis in this less animated economy.
Market Reaction: Equity markets opened with gains but have since eased. Treasury yields are up. Oil is down to $95.39/barrel. The dollar is up against the yen and the euro.
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