The short week produced mixed U.S. data. Signs continue to point to a weak, but positive, GDP reading for the first quarter of 2015. Even though the GDP data is seasonally adjusted, we have had a spate of weak Q1 reports coming off the Great Recession, including 2010Q1, 2011Q1, 2014Q1, and now 2015Q1. Sometimes patterns just happen, particularly when the underlying components of a series are complex.
Home construction remains range-bound near the 1 million units per year mark. Housing starts fell by 0.2 percent in January to a 1,065,000 unit annual rate, essentially where they have been through the second half of 2014. We can blame the weather a little bit. The National Association of Homebuilders’ Builder Confidence Survey fell 2 points in February, attributed to snow cover. Aside from the weather, new home sales were stuck near a 450,000 unit pace over the last two years, holding builders in check. Building permits eased slightly by 0.7 percent in January, to a 1,053,000 million unit pace.
The Producer Price Index for Final Demand fell by 0.8 percent in January, well beyond consensus expectations. Final demand goods prices were down by 2.1 percent. The energy index slid by 10.3 percent, the largest one-month drop since oil prices started falling last July. Food prices eased 1.1 percent with lower dairy product prices. Final demand services prices were lower by 0.2 percent with lower costs for outpatient care. Over the previous 12 months the PPI for final demand is unchanged.
The Industrial Production Index for January was up by 0.2 percent. Manufacturing output matched that gain, increasing by 0.2 percent. Motor vehicle assemblies eased by 1.4 percent to an 11.76 million unit rate, reflecting the step down in auto sales from November through January. Utility output rebounded off a December dip, gaining 2.3 percent in January.
The Conference Board’s Leading Economic Index for January gained just 0.2 percent, the weakest gain since last August. The coincident and lagging indexes were also up, indicating broad momentum in the U.S. economy.
Initial claims for unemployment insurance for the week ending February 14 decreased by 21,000 to hit 283,000. Continuing claims increased by 58,000, to 2,425,000 for the week ending February 7.
The minutes of the Federal Open Market Committee meeting of January 27-28 show a Fed deeply engaged in the process of figuring out the mechanics of interest rate lift off. We may see a further refinement of the Fed’s forward guidance on interest rates after either the March or April FOMC meetings. We expect the Fed to modify forward guidance this Spring in order to signal their intentions to lift the fed funds rate later this year. The June FOMC meeting still feels like a reasonable guess for the timing of interest rate lift-off.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 02-20-15.