Inflation Perking Up, Retail Sales Firm: What We Learned During the Week of February 13 – 17

Inflation made its presence felt in January while manufacturing output grew despite a decline in automobile production. Here are the 5 things we learned from U.S. economic data released during the week ending February 17.

#1Both consumer and wholesale prices jumped during January. Per the Bureau of Labor Statistics, the Consumer Price Index (CPI) surged 0.6% on a seasonally adjusted basis during the month, its biggest 1-month gain since February 2013. Energy prices grew for a 5th straight month with a 4.0% increase as gasoline prices swelled 7.8% on a seasonally adjusted basis (without adjustments for seasonal variation, gas prices grew 5.3%). Other energy goods experiencing price increases during January included utility delivered natural gas (+1.5%) and fuel oil (+3.5%). Food prices grew for the 1st time since last April albeit with a tepid 0.1% gain. Net of energy and food, core CPI grew 0.3% during the month and had a 12-month comparable of +2.3%, which was above the Federal Reserve’s 2% inflation target rate. Rising during the month were prices for apparel (+1.4%), new vehicles (+0.9%), transportation services (+0.6%), and medical commodities (+0.3%).

Meanwhile, the Producer Price Index (PPI) for final demand goods and services jumped 0.6% on a seasonally adjusted basis during January. This was the wholesale price measure’s largest single-month increase since March 2011, leaving PPI 1.6% above its January 2016 reading. Net of the typically volatile prices for energy, food, and trade services, core PPI grew 0.2% during the month with a 12-month comparable of +1.6%. Wholesale prices for final demand goods rose 1.0% (its biggest single-month gain since last June), with 3/4ths of the gain attributed to a 4.7% surge in energy goods PPI (gasoline: +12.9%). Food prices were flat for the month. Net of energy and food, the core PPI measure for final demand gained 0.4% during January, led by price increases for pharmaceutical preparations and iron & steel scrap. Prices for final demand services jumped 0.3% as trade prices (i.e., retailer and wholesaler margins) increased 0.9%.consumer-producer-prices-021717

#2Manufacturing output grew modestly in January. The Federal Reserve reports that manufacturing production increased 0.2% during the month and was 0.3% above its January 2016 pace. The increase in manufacturing output was held down by a 2.9% slowdown in automobile production—net of autos, manufacturing output rose 0.5% during the month. Outside of motor vehicles, most other categories of durable goods production increased during January with machinery manufacturing growing the most. Production of nondurables rose 0.6%, with gains exceeding 1.0% for textiles, petroleum/coal products, and chemicals. Overall industrial production slowed 0.3% during January as warm winter weather pulled down output at utilities by 5.7%. Mining output grew 2.8%. Factory utilization in manufacturing edged up 1/10th of a percentage point to 75.1%. Overall industrial capacity utilization, however, slipped 3/10ths of a percentage point to 75.3%.

#3Retail sales started the new year on a strong note. The Census Bureau estimates retail and food services sales were at a seasonally adjusted $472.1 billion in January, up 0.4% from the prior month and 5.6% from a year earlier. (Note that the year-to-year comparable were helped a bit by a relatively weak sales report back in January 2016). Sales at auto dealers & parts stores fell 1.4% while those at gas stations surged 2.3% due to higher prices at the pump. Net of those two retailer classes, core retail sales grew 0.7% during January. Sales grew by at least 1% at sporting goods/hobby retailers (+1.8%), electronics/appliance stores (+1.6%), restaurants/bars (+1.4%), department stores (+1.2%), and apparel retailers (+1.0%). While sales at nonstore retailers (e.g., internet retailers) were unchanged for the month, they were a robust 12.0% above the January 2016 sales pace.

#4Housing starts slowed during January. The Census Bureau estimates housing starts were at a seasonally adjusted annualized rate of 1.246 million units, down 2.6% from the December pace. Starts activity slowed sharply in both the West (-41.3%) and Midwest (-17.9%) but grew healthily in both the Northeast (+55.4%) and South (+20.0%). Even with January’s decline, housing starts were 10.5% ahead of their January 2016 pace, indicative of a still solid construction market. Starts of single-family units were at a SAAR of 823,000 units, up 1.9% for the month and 6.2% from a year earlier. Looking towards the future, there were 1.285 million issued residential construction permits (SAAR), +4.6% vs. December 2016 and +8.2% vs. January 2016. Housing completions slowed 5.6% during the month to 1.047 million units. This was off 0.9% from the January 2016 completions pace.

#5Leading indicators signal economic expansion for the coming months. The Leading Economic Index from the Conference Board added 8/10ths of a point during January to a reading of 125.5 (2010 = 100). This was up 2.5% from a year earlier. 8 of the measure’s 10 components made positive contributions, led by the interest rate spread, building permits, and jobless claims. The coincident index edged up 1/10th of a point to 114.4 (+1.6 vs. January 2016). 3 of 4 coincident index components made positive contributions, including nonfarm payrolls and personal income net of transfer payments. The lagging index added 4/10ths of a point to 123.7 (+3.3% vs. January 2016), with 4 of 7 index components making a positive contribution. The press release noted should the indices’ trends continue, “the U.S. economy may accelerate in the near term.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 11, 2017, First-Time Claims, seasonally adjusted): 239,000 (+5,000 vs. previous week; -21,000 vs. the same week a year earlier). 4-week moving average: 244,250 (-9.2% vs. the same week a year earlier).
Housing Market Index (February 2017, Index (Greater than 50 = “Good” Housing Market, seasonally adjusted): 65 (vs. January 2017: 67, vs. February 2016: 58).
Small Business Optimism Index (January 2017, Index (1986 = 100), seasonally adjusted): 105.9 (vs. December 2016: 105.8, vs. January 2016: 93.9).
Business Inventories (December 2016, Manufacturing & Trade Inventories, seasonally adjusted): $ 1.836 trillion (+0.4% vs. November 2016, +2.0% vs. December 2015).
Treasury International Capital Data (December 2015, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): -$13.9 billion (vs. November 2016: +$15.9 billion, vs. December 2015: -$43.4 billion).

The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.

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