Energy and Shelter Prices Firmed as 2016 Wrapped Up: What We Learned During the Week of January 16 – 20

During the final days of 2016, consumer prices continued to firm while factory output increased. Here are the 5 things we learned from U.S. economic data released during the week ending January 20.

#1Gasoline and shelter pulled up consumer prices during December. The Consumer Price Index (CPI) jumped 0.3% on a seasonally adjusted during the month and was 2.1% above year ago levels, per the Bureau of Labor Statistics. Energy prices increased for the 4th consecutive month with a 1.5% gain as gasoline prices surged 3.0%. Holding steady for a 6th straight month were food prices. Net of energy and food, core CPI grew 0.2% during the month with a year-to-year comparable just above the Federal Reserve’s target with a 2.2% gain. Increasing during the month were prices for transportation services (+0.6%), used cars/trucks (+0.5%), medical care services (+0.4%), shelter (+0.3%), new vehicles (+0.1%), and medical care services (+0.1%). Apparel prices, on the other hand, fell for the 3rd time in 4 months with a 0.7% decline.consumer-prices-012017

#2Manufacturing activity edged up during December. The Federal Reserve estimates manufacturing sector output grew 0.2% during the month, leaving it 0.2% above its year ago level. The output of durable goods increased 0.5%, with “sizable” gains in the production of automobiles (+1.8%) and primary metals (+1.4). Nondurable goods production fell 0.3%, pulled down by substantial output declines for textiles (-3.0%) and chemicals (-1.0%). Overall industrial production grew 0.8% during the month and was 0.5% above its December 2015 level. Mining output was unchanged during the month while utility production jumped 6.6% as winter weather increased heating demand. Factory usage also grew during December with capacity utilization increasing by 6/10ths of a percentage point to 75.5% while factory utilization in the manufacturing sector edged up 1/10th of a percentage point to 74.8%.

#3Thanks to a boost in the multi-family sector, housing starts rebounded in December. The Census Bureau reports that housing starts jumped 11.3% during the month to a seasonally adjusted rate of 1.226 million units (+5.7% vs. December 2015). Starts grew in the Midwest, West, and Northeast, but declined in the South. Starts of single-family homes declined for a 2nd straight month: -4.0% to 795,000 units (SAAR, +3.9% vs. December 2015). On the flip side, starts of multi-family units (5+ units) surged 53.9% during the month to 417,000 units (SAAR, +10.3% vs. December 2015). Looking towards future activity, the count of issued building permits slipped 0.2% during December to a SAAR of 1.210 million permits (+0.7% vs. December 2015). Finally, the SAAR of completed homes dropped 7.9% during the month to 1.123 million units. This was 8.7% above the pace of completions in December 2015.

#4Homebuilders’ confidence slipped slightly in January but nevertheless stayed strong. The Housing Market Index (HMI), from the National Association of Home Builders, shed 2 points during the month to a seasonally adjusted reading of 67. This was the 31st straight month in which the index was above a reading of 50, indicative of a greater percentage of homebuilders describing the housing market as “good” versus seeing it as being “poor.” The HMI contracted in 3 of 4 Census regions: West (down 9 points to 75), Northeast (down 5 points to 52), and South (down 3 points to 67). The HMI held steady at 66 in the Midwest. Also falling were indices for current sales of single-family homes (down 3 points to 72), expected sales (down 2 points to 76), and traffic of prospective buyers (off a point to 51). Per the press release, the trade group expects construction of new single-family homes to increase 10% during 2017.

#5Industries that made the largest contributions to Q3 2016 GDP growth were finance/real estate, wholesale trade, and professional/business services. As reported previously, Gross Domestic Product (GDP) grew 3.5% on a seasonally adjusted annualized basis during the quarter. The Bureau of Economic Analysis released a report that provides detail the contributions to economic by industry groups. The industry sectors making the largest contributions GDP growth were finance/insurance (64-basis point contribution), wholesale trade (48-bassi point contribution), professional/business services (47-basis point contribution), durable goods manufacturing (32-basis points), and the government (25-basis points). Overall, the private service sector added 286-basis points to Q3 GDP growth while the private goods-producing side of the economy was responsible for 41-basis points of GDP growth.

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 14, 2017, First-Time Claims, seasonally adjusted): 234,000 (-15,000 vs. previous week; -57,000 vs. the same week a year earlier). 4-week moving average: 246,750 (-12.9% vs. the same week a year earlier).
Treasury International Capital Flows (November 2016, Domestic Securities Purchased by Foreign Investors, not-seasonally adjusted): +$13.3 billion (vs. -$6.0 billion in October 2016, vs. +$44.3 billion in November 2015).
Beige Book

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