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On the radar: Look back at February 25 week hints that softness in December will give way to some firmer data in January

A look back at the February 25 week saw more progress in getting out the backlog of data after the partial federal government shutdown. The Census Bureau and Bureau of Economic Analysis both released updated calendars that filled out the unknowns. In March and into April, the economic data release schedule will be accelerated and crowded.

In any case, the February 25 week was a busy one even without the backlogs. However, most of the data took a back seat to Chair Jerome Powell’s semiannual monetary policy testimony on February 26-27 and a speech by Vice Chair Richard Clarida on Thursday. There actually was not much fresh in either’s comments, especially in advance of the March 19-20 FOMC meeting. Still, it affirmed that after the FOMC consensus shifted at the end of 2018 to lower expectations for growth and tamer inflation in 2019 along with more elevated risks, and that Fed policymakers were not in any rush to impose further rate hikes. As for balance sheet policy, the Fed is no more anxious to return it to an active tool of monetary policy than they were. The change is simply that policymakers have determined that an environment of “abundant reserves” and administered short-term rates is the best way to proceed in controlling monetary policy in the post-crisis world. There was a solid suggestion that Governor Brainard’s remarks in the prior week that the normalization program for the Fed’s holdings of Treasurys and MBS would end later in 2019 was in line with the consensus. Powell said the FOMC would announce its plans “soon”, so something by the June meeting seems likely.

If there was a common theme in the economic data in the prior week, it was that the burst of consumer and business confidence that greeted the election of Donald Trump in 2016 has worn off and turned to levels that are consistent with moderate economic growth and expectations that it will be sustained. Also, after year of fiscal stimulus against a backdrop of uncertain trade and tariff policies at home and softening in growth abroad, other measures of activity point to expansion at a less hectic pace and with more month-to-month volatility.

The ISM Manufacturing Index for February on Friday posted a 118th straight month of expansion at 54.2, down from 56.6 in January and 54.3 in December. The index hasn’t seen readings near these levels since November-December 2016 as new orders, production, and employment moderated. The readings were not bad ones and remained in expansionary territory. They just were not the booming levels of most of 2017-2018 when synchronized global expansion lifted activity. Most of the District Bank surveys of manufacturing pointed in the direction of slowing expansion when compared to the five components of the ISM index.

The “initial” GDP number – the combined advance and second estimates – was up 2.6% for the fourth quarter 2018, plus a minor revision to the third quarter to up 3.4% (previously up 3.4%) after revisions in some of the data that feeds into the full report. The third estimate of the fourth quarter will be reported as previously scheduled on Thursday, March 28 at 8:30 ET. Most of the data used in compiling the report was available and the second estimate usually sees little revision by the third time around. At this writing the first quarter is already well-advanced, and the available numbers point to a relatively slow start for 2019. The first quarter is often subject to being dragged down by “seasonal residuality” even though the BEA has worked hard to correct the tendency.  A couple of bouts of bitterly cold weather, the presence of the government shutdown in January, some detriments to consumer spending like lower tax returns and a pull back in purchasing big-ticket items and homes could mean the support from consumer and business spending will be absent for at least part of the first quarter growth.

Personal income was reported for December and January, while personal consumption expenditures and the PCE deflator only got updates through December. Personal income saw a year-end bounce of up 1.0% that was largely due to a few special factors, but the underlying trend for wages and salaries remained healthy. January started the year off at down 0.1% that was likely due to some bonuses being paid in December rather than January. Year-over-year inflation as measured by the PCE deflator continued to sag due to falling energy prices, while the core PCE deflator remained close to the Fed’s 2% objective.

The Conference Board’s Consumer Confidence Index rose to 131.4 in February after 121.7 in January, and the final University of Michigan Consumer Sentiment Index was up to 93.8 from 91.2. Both were higher after the impacts of the shutdown on the prior month. Both remain at levels the reflect good confidence in conditions presently and six months from now. However, both have also faded from recent peaks and show a more pragmatic view of economic activity.

The data on the housing market confirmed that 2018 ended on a down note, but that 2019 is showing a few “green shoots” at the start. Data on housing starts on Tuesday in December fell 11.2% month-over-month to 1.078 million units (SAAR), and were down 10.9% compared to a year ago. This would be more discouraging had the numbers of permits issued not held on and risen 0.3% to 1.326 in December from November and were up 0.5% from 1.320 million a year-ago.  Starts can be quite volatile month-to-month in the winter depending on the weather and other factors, but the demand for new residential constructions appears to be solid.

The national home price indexes from the FHFA and S&P CoreLogic Case-Shiller reports for December on Tuesday both indicated that upward momentum in home prices is fading, but still rising.

Better news for the housing market came from the NAR’s Pending Home Sales Index which rebounded 4.6% in January to 103.2 after falling to an almost five-year low of 98.7 in December. Declines in mortgage interest rates have helped home affordability at a time when consumers have a little more power to negotiate prices.

December factory orders had a solid 1.2% rise in durables nearly offset by a 1.0% drop in nondurables. On the durables side, the 3.2% rise in transportation related to aircraft accounted for most of the gain. For nondurables, falling prices for petroleum accounted for the decline. January and February surveys of manufacturing hint that orders have lost some momentum.


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