Comerica Economic Weekly

Generally improving economic data for February and into early March support the view that bad weather was a factor in December and January, and that metrics will tend to improve this spring.

The residential construction report for February indicated 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. 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. Utility output dipped by 0.2 percent in February, following a January surge.

The Conference Board’s Leading Economic Index increased by 0.5 percent in February, after stalling in December and January. The coincident and lagging indexes were also positive for the month. Summed up, the leading, coincident and lagging indicators gained a combined 1.0 percent in February, after gaining 0.7 percent in January and 0.3 percent in December.

Existing home sales edged down in February, as we expected. February sales dipped by 0.4 percent to a 4.60 million unit rate. Four negative factors were in play in February – mortgage rates above recent historic lows, bad weather, soft jobs data and less activity from institutional buyers and investors. As other economic metrics, including job creation, step up this spring, we expect existing home sales to first stabilize near current levels, and then resume an upward track boosted by rising demand from traditional buyers.

Initial claims for unemployment insurance increased by 5,000 for the week ending March 15, to hit a level of 320,000. Initial claims appear to be stabilizing at a level consistent with ongoing moderate job growth, another signal that the winter freeze out in job creation will prove to be temporary.

The Philadelphia Federal Reserve Bank’s Business Outlook Survey showed that current manufacturing conditions improved in early March, after deteriorating in February.

The Federal Open Market Committee voted Wednesday to reduce its asset purchase program by another $10 billion, to $55 billion per month, beginning in April. The Fed remains on track to eliminate this program by the end of this year, possibly by the end of October. The fed funds rate remains set near zero. Forward guidance for the fed funds rate has been modified, eliminating the 6.5 percent unemployment rate threshold.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly032114.

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