And They’re Off: March 14 – 18

The Federal Reserve begins its tightening campaign. Here are the five things we learned from U.S. economic data released during the week ending March 18. 

The Fed makes the first of many more moves. The statement released following the past week’s meeting of the Federal Open Market Committee (FOMC) started with “[i]ndicators of economic activity and employment have continued to strengthen.” But then it quickly noted the “elevated” level of inflation and how the Russian invasion of Ukraine was “causing tremendous human and economic hardship.” As a result, the FOMC voted to raise the fed funds target rate by a quarter-point to a range between 0.25 percent and 0.50 percent and stated that it “anticipates that ongoing increases.” Further, the Federal Reserve has ceased purchasing Treasury securities and agency debt and signals that it will likely begin to shed currently held assets soon. The vote for these policies was not unanimous. Instead, James Bullard preferred a more aggressive half-point hike in the fed’s short-term interest rate target. 

Retailers held onto but did not add much to their prior month’s gains. The Census Bureau reports that retail and food services sales grew 0.3 percent in February to a seasonally adjusted $658.1 billion. This followed a 4.9 percent sales surge in January and left sales over the first two months of this year 15.5 percent ahead of the comparable months in 2021. Note that the data series does not control for inflation, which, of course, has been significant recently. Removing gas stations (+5.3 percent) and motor vehicle/parts dealers (+0.8 percent), core retail sales fell 0.4 percent in February. Sales dropped at retailers focused on health/personal care (-1.8 percent), furniture (-1.0 percent), groceries (-0.8 percent), and electronics/appliances (-0.6 percent). Sales rose at restaurants/bars (+2.5 percent), sporting goods/hobby stores (+1.7 percent), department stores (+1.6 percent), apparel retailers (+1.1 percent), and building materials stores (+0.9 percent).

Manufacturing production regained momentum in February. The Federal Reserve estimates manufacturing output rose a seasonally adjusted 1.2 percent during the month, following a feeble 0.1 percent gain in January. Durable and nondurable manufacturing swelled 1.3 percent and 1.1 percent, respectively, with the former occurring despite a 3.5 percent drop in automobile production. Overall industrial production advanced 0.5 percent in February, following a 1.4 percent bump during the prior month. Mining production eked out a 0.1 percent increase while output at utilities fell 2.7 percent. Industrial production and manufacturing have grown 7.5 percent and 7.4 percent, respectively, over the past year. 

Forward-looking indicators rebounded in February. The Leading Economic Index (LEI) from the Conference Board grew 0.3 percent during the month following a half-point drop in January to a reading of 119.9 (2016=100). LEI has risen 2.1 percent over the past six months. Seven of ten LEI components made positive contributions to the index, led by jobless claims. The Coincident Index rose 0.4 percent in February to 108.0 (+1.5 percent over the past six months). All four coincident index components made positive contributions, led by nonfarm payrolls. The Lagging Index held steady during the month at 110.3 as only two of seven index components made positive contributions. The press release noted that the results did not reflect the effects of the Russian invasion of Ukraine, “which could lower the trajectory for the US LEI and signal slower-than-anticipated economic growth in the first half of the year.”

An absence of inventory leads to a drop in home sales in February. The National Association of Realtors reports that existing home sales slumped 7.2 percent to a seasonally adjusted annualized rate (SAAR) of 6.02 million units. Sales declined in all four Census regions, including double-digit percentage decreases in the Northeast and Midwest. Sales also were off 2.4 percent from a year earlier. A challenge remains a lack of homes available for sale—there were 870,000 homes on the market at the end of February, the equivalent to a mere 1.7 month supply. As a result, the median sales price of $357,300 was up 15.0 percent from a year earlier. The press release warned that affordability—in terms of both rising prices and interest rates—was a “major challenge.” 

Other U.S. economic data released over the past week:

• Jobless Claims (Week ending March 12, 2022, First-Time Claims, seasonally adjusted): 214,000, -15,000 vs. the previous week, -549,000 vs. the same week a year earlier). 4-week moving average: 223,000 (-70.3% vs. the same week a year earlier). 
• Producer Price Index (February 2022, Final Demand, seasonally adjusted): +0.8% vs. January 2022; +10.0% vs. February 2021. Net of Foods, Energy, and Trade Services: +0.2% vs. January 2022: +6.6% vs. February 2021.
• Import Prices (February 2022, All Imports, not seasonally adjusted): +1.4% vs. January 2022; +10.9% vs. February 2021. Nonfuel Imports: +0.8% vs January 2022; +7.2% vs. February 2021.
• Export Prices (February 2022, All Exports, not seasonally adjusted): +3.0% vs. January 2022; +16.6% vs. February 2021. 
• State Employment (January 2022, Nonfarm Payrolls, seasonally adjusted): Grew in 9 states and essentially held steady in 41 states and the District of Columbia vs. December 2021. Grew in 46 states and the District of Columbia and essentially held steady in 4 states vs. January 2021. 
• Housing Starts (February 2022, Privately-Owned Housing Starts, seasonally adjusted annualized rate): 1.769 million units (+6.8% vs. January 2022; +22.3% vs. February 2021).
• Treasury International Capital Flows (January 2022, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$53.9 billion (December 2021: + $77.5 billion; January 2021: +$33.7 billion).
• Business Inventories (January 2022, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.238 trillion (+1.1% vs. December 2021; +11.4% vs. January 2021).

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