U.S. economic data for January continues to be fairly benign, masking some issues that will show up more in February. Price indexes do not yet reflect higher petroleum prices. Even as retail gasoline prices climbed, the energy price components of both the Producer Price Index and the Consumer Price Index fell in January. Overall, the PPI for finished goods increased 0.2 percent in January, boosted by gains in food and pharmaceuticals. The CPI for January was unchanged, as it was in December. Core CPI (less food and energy) was up 0.3 percent. Of note was the gain in the housing component. Owners’ equivalent rent was up 0.2 percent, showing the impact of firming house prices. That big anchor on the CPI is now lifting.
Existing home sales increased by 0.4 percent to hit a 4.92 million unit annual rate in January. Inventories of homes for sale continue to tighten, now down to 4.2 months’ worth for existing homes. The sales price of an existing home is up 12.3 percent nationally from a year ago, according to the National Association of Realtors. Housing starts fell in January, down 8.5 percent as the volatile multifamily component wobbled. Single-family starts were the strongest since January 2008. Permits are still holding onto the high ground, up 1.8 percent in January to a 925,000 unit annual pace. New home sales for January are due out on Tuesday.
The Conference Board’s Leading Economic Index for January gained 0.2 percent, helped by the January rally in stock prices. The index does not directly account for the expected drag from fiscal tightening. The Coincident and the Lagging Indexes both gained 0.4 percent in January. Initial claims for unemployment insurance increased by 20,000 for the week ending February 16, to hit 362,000. Claims are at a level that is consistent with moderate job growth, but the trend has flattened out in recent weeks.
In the Federal Open Market Committee minutes from January 29/30, several Fed officials emphasized that the committee should be prepared to vary the pace of asset purchases in response to economic conditions. So far, policy announcements from the FOMC have been consistent in calling for $85 billion worth of asset purchases per month for QE3.
Anecdotal reports are warning of decreased retail sales as tax hikes reduce after-tax income. This is not only happening because of higher federal taxes, but is also happening at the state level in California, which accounts for 13 percent of U.S. economic activity. Counterbalancing the drag from higher taxes is the positive wealth effect from increasing home and equity prices. Robust job creation would certainly be an effective antidote to higher taxes, but there is no evidence yet of an increase in hiring in February over the moderate 157,000 job gain in January.
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