April 14, 2014
Last week: During a quiet week with relatively little news, the drop in stock prices garnered headlines, even as corporate profit reporting gets underway. There seems to be a little more retail activity in early spring, as the wet, cold winter fades into memory. And forecasts continue to reflect optimism that the economy is picking up momentum. Still, it is hard to shake the memory of prolonged weak growth. And new reports about softness in the housing market (another dip in mortgage applications) do not help. So, some cautious optimism seems to pervade, except on stock exchanges.
Retail Sales, March (Bureau of the Census)
Vehicle sales (at a 16.4 million pace in March) reflect some catch up from widespread inclement weather at the start of the year. Nonauto retail spending will appear stronger than it really is for the same reason. Going forward, the retail pace will be dictated by the pace of hiring and any pickup in wages. Retailers, still stuck with piled up inventory, are hoping continued good news on the labor front allows consumers to put into action some long delayed plans.
Consumer Price Indexes, March (Bureau of Labor Statistics)
Globally, inflation is slowing. Domestically, it is simply holding steady, albeit at a very slow pace. “Core” prices (which exclude food and energy) have been rising by no more than 0.2 percent per month for more than a year. There is little reason to expect anything different. Energy prices are running below year-ago comparisons (not including natural gas and electricity, driven higher by the bad weather). Food prices are relatively quiet, although meat prices could be driven lower as more steak hits the markets due to herd culling out west, another weather impact. Prices will rise as demand exceeds supply. “Core” prices, however, are unlikely to start rising much even if the economy turns a corner. Medical-care inflation has slowed while the cost of housing remains steady. Without much change in either of those two components, retail inflation will not change significantly.
Housing Starts and Building Permits, March (Bureau of the Census)
Home building has been running close to a million starts (annualized). Demand has held up, even with mortgage rates moving a little higher. And with foreclosure activity winding down, more demand must be met by increased construction. Weather has delayed some home building, but it hasn’t stopped the industry from staffing up, in anticipation of putting up more units (single family or apartment). The most likely path forward is continued slow improvement. Alternatively, a faster pace is far more likely than a slowdown.
Industrial Production, March (Federal Reserve Board)
The ordering rate remains soft and the inventory overhang weighs on production schedules. So even if retail buying is poised for a pickup, it remains too soon to expect industrial production to start posting anything close to robust gains. That may develop later this spring. For now, flat industrial production is more likely.
Source: The Conference Board
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