Comerica Economic Weekly

U.S. economic data continues to show evidence of a spring thaw. Retail sales for March were up a strong 1.1 percent, driven by a snap back in auto sales. Retail sales of autos and parts were up 3.1 percent in March.  Non-auto retail sales gained a solid 0.7 percent for the month. The strong retail sales growth seen in March will not be sustained in the months ahead as this winter’s pent-up demand is spent out. It is, nonetheless, a sign that consumer spending is resilient.

The Consumer Price Index for March increased by 0.2 percent, up from the previous two months of 0.1 percent gains. A key factor in the small uptick in consumer inflation was the cost of housing. As house prices go up, so too will the owners’ equivalent rent index which feeds into the shelter component of the CPI. Owners’ equivalent rent accounts for about 24 percent of headline CPI. Also, we can expect ongoing upward pressure from traditional rents, which account for about 7 percent of headline CPI. So we can say that about a third of CPI will feel more pressure from housing markets for the remainder of the year.

Residential construction activity is also showing an improving trend after a tough winter. Housing starts were up by 2.8 percent in March, to a 946,000 unit pace, propelled by a rebound in single-family starts. Building permits for residential construction fell by 2.4 percent in March to a 990,000 unit pace, after a strong February. The level of permits remains above the levels for starts for the month. So the dip in permits in March should not be interpreted as a sign of weakness in residential construction.

Industrial production was up a solid 0.7 percent in March, and February production was revised up to show a strong 1.2 percent gain. This is the strongest two-month percentage gain since April-May 2010. This has positive implications for GDP growth for the recently- completed first quarter, implying upside risk for our forecast of a very weak 0.5 percent growth rate for real GDP. Overall capacity utilization for March increased to 79.2 percent. Most industries remain well shy of their 1994-95 highs for capacity utilization. But as we cross from average to above-average capacity utilization, pricing power increases…something to watch for going forward.

The New York Fed’s Empire State Manufacturing Survey for April shows that business activity was flat for New York-area manufacturers. The Philadelphia Fed’s Business Outlook Survey for April showed improving conditions for manufacturing in Pennsylvania and New Jersey.

Initial claims for unemployment insurance for the week ending April 12 increased slightly by 2,000 to a level of 304,000. This is still well within the “healthy” range. Continuing claims for the week ending April 5 declined by 11,000 to hit 2,739,000.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 04-18-14.

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