Housing starts (Jan): Weather-related decline
Written on July 25, 2011 by Wiley Hayden
The New York Empire manufacturing index only increased slightly by two points in January, but its subcomponents went up significantly. As January’s ISM manufacturing index, which was released later, jumped to the highest level since May 2004, we predict that the NY Empire will have risen to about 20.0 in February. The Philadelphia Fed index fell slightly in January, albeit remaining at a higher level. As its subcomponents improved markedly too, we expect the Philadelphia Fed index to have increased somewhat to 21.0 in February.
Retail sales gained traction in Q4, going up by 14.0% annualised. We expect them to have risen buoyantly again in January. At the beginning of the new year, customers often redeem Christmas vouchers. Moreover, the ongoing increase in fuel prices will have raised nominal sales at gasoline stations and, according to industry figures, adjusted vehicle sales will have probably risen significantly too. Given the sharp improvement in consumer confidence, we forecast that retail sales will have gone up by 0.8% mom in January. Retail sales excluding cars could have risen by 0.5% mom again.
We expect growth in business inventories to have accelerated to 0.9% mom in December. It is already known that factory inventories went up by 1.1% mom and wholesale inventories by 1.0% mom. In its first estimate for GDP in Q4, the Commerce Department estimated that retail inventories will have risen too in the last month of the year.
In January, the NAHB housing market index remained unchanged at a still low level 16 for a third consecutive month. Homebuilder optimism could have improved modestly to 17 in February, as sales expectations remained at a noticeably higher level the previous month. However, this would still be very low, because a number below 50 indicates that more builders view conditions as bad rather than good.
Housing starts fell from 553k to 529k in December, but we are not expecting a rebound in January, as snow storms will have hampered construction activities. Building permits shot up by 15% mom to 635k in December, but we expect them to have corrected downward to about 600k in January.
There were no major changes in January’s FOMC statement, except for a slightly better economic assessment. The FOMC minutes could nevertheless show some discussion about the extent of QE2 ($600bn). Recently, some Fed representatives have expressed doubts about the necessity of QE2, given that the economy is strengthening, and rising inflation expectations have been causing some concern. It will be interesting to see whether there was any discussion about inflation risks, since the statement noted that measures of underlying inflation were low relative to the levels the FOMC judges consistent with price stability. The FOMC minutes will include adjusted projections for GDP growth, inflation and unemployment for 2011 to 2013. After the better than expected results at the end of 2010, the Fed might raise its growth projection for 2011 and lower its projection for the unemployment rate somewhat. The forecast for PCE inflation might also be raised due to higher commodity prices, but the estimate of core PCE inflation could be left unchanged.
Industrial production had gone up by 0.8% mom in December. The further improvement of the ISM production component to 63.5 indicates that production will also have risen in January. But manufacturing working hours merely remained unchanged, and adverse weather conditions, which hampered activities in almost all regions, could have limited the increase to 0.3% mom in January. Utility output might have had a slightly positive impact, but January was not colder than usual. The capacity utilisation rate might have increased to 76.4%, which would still be much lower than the long-term average of a good 80%.
Leading indicators had improved sharply in November and December, but the rise could have moderated to 0.2% mom in January. The biggest positive contribution will have come from the steep yield curve, followed by slower deliveries, higher stock prices and consumer expectations. But several components will have made a negative impact, namely, manufacturing working hours, jobless claims, real M2 and, presumably, building permits. The annualised 6-month rate, which had improved sharply from 4.3% to 6.7% in December, could have gone up further, albeit only slightly.
Inflation measures are likely to show a marked rise in January. The oil price in the first third of the month will have had a big impact on import prices in particular. Moreover, the sharp increase in the ISM prices paid component indicates some pressure on producer prices. Gasoline prices went up significantly, which could have pushed producer and consumer prices up noticeably. Furthermore, food prices continued their upward trend. We expect import prices and producer prices to have risen by 0.8% mom in January. Consumer prices, which had increased by 0.5% mom in December, could have gone up by 0.4% mom. Core CPI’s annual rate could rise above 1% for the first time since March 2010.
In the week ending 12 February, initial jobless claims fell to under 400k for the first time since the beginning of July 2008. Although the figures might have been somewhat distorted because of adverse weather conditions, they are yet another sign that the labour market is finally improving noticeably. After declining from 419k to 383k, jobless claims are expected to have risen moderately to 395k in the week ending 19 February.
Similar Posts:
- Trade balance (Jan): Deficit widening again despite strength in exports
- Inflation data (Mar): Sharp upward drift in annual rates
- Home sales (Jan): Weather-related decline
- Industrial production (Nov): Moderate increase
- ISM indices (Dec): Robust expansion levels
