Permits and Production Up, Prices Tame, Fed Set to Taper
- February Housing Starts were little changed, down by 0.2 percent to a 907,000 unit annual rate.
- Permits for new residential construction increased in February by 7.7 percent to a 1,018,000 unit pace.
- The Consumer Price Index increased by 0.1 percent in February. Core CPI also gained 0.1 percent.
- Industrial Production for February climbed a strong 0.6 percent as auto production rebounded.
Benign economic data for February support the view that bad weather was a factor in December and January, and that metrics will tend to improve in March. This last bit of U.S. data before the Federal Open Market Committee’s meeting today and Wednesday is supportive of another round of QE tapering. We expect the Fed to announce another $10 billion reduction in their asset purchase program, bringing purchases down to $55 billion per month until the next meeting at the end of April. The fed funds rate stays near zero into next year. Also, we expect to see a modification to forward guidance about the fed funds rate. It will no longer be linked to an explicit unemployment rate threshold.
The good news in the residential construction report for February is that permits for new construction accelerated after dipping through December and January. Permits increased by 7.7 percent to hit an annual rate of 1,018,000 units. Multifamily permits jumped by 27 percent to a 407,000 unit rate, the best performance in that category since June 2008. We are seeing that comparison more and more as data is normalizing to pre-recession readings. Housing starts for February were essentially unchanged at a 907,000 unit annual pace.
Overall consumer prices were little changed in February as the headline CPI gained just 0.1 percent. Over the previous 12 months, the CPI was up a tame 1.1 percent. Core CPI (all items less food and energy) was also up just 0.1 percent in February. Over the past year core CPI has increased by 1.6 percent.
Industrial production for February was stronger than expected, increasing by a solid 0.6 percent. Manufacturing output increased by 0.8 percent, boosted by a rebound in auto production. Vehicle assemblies sagged in January after a strong run through November and December. February’s assembly rate of 11.4 million vehicles was just a little below the November-December average of 11.5 million units. Utility output dipped by 0.2 percent in February, following a January surge.
Market Reaction: Equity markets opened with gains. The yield on 10-Year Treasury bonds is up to 2.69 percent. NYMEX crude oil is up to $98.44/barrel. Natural gas futures are down to $4.45/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Housing Starts 031814.