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Look forward to March 11, 2019 week: Inflation and inflation expectations add to the Fed policy outlook

A look forward to the March 11 week has an opportunity to review the price stability side of the Fed’s dual mandate after giving the full employment a once over in the prior week.

The reports related to inflation in February are led off by the Consumer Price Index at 8:30 on Tuesday, followed by the Final Demand Producer Price Index at 8:30 ET on Wednesday, and then the Import Price Index at 8:30 ET on Thursday. Recent months have reflected the rapid fall in oil prices that began in November, but January saw prices begin to plateau and then rise more quickly in February. It is fairly typical for energy costs to increase toward the end of winter. The seasonal adjustment for those data series for energy will probably match up. However, there should be less of a gap between the total in the headline and the core indexes. On a year-over-year basis, the pace of price increases should remain close to the Fed’s 2% objective.

There will be an early look at inflation expectations for March with the Atlanta Fed’s Business Inflation Expectations (BIE) survey at 10:00 ET on Wednesday and the preliminary University of Michigan Consumer Sentiment Index at 10:00 ET on Friday. The BIE has dipped rapidly from 2.3% in December to 2.0% in January and 1.9% in February. The decline in businesses’ expectation will probably level out in March and could regain a tenth or so. Energy costs are a bit higher and uncertainty about trade negotiations and the possibility of a fresh round of tariffs may lead to a small acceleration. Consumers’ inflation expectations tend to be driven by gasoline prices and home energy costs. The modest increase in prices at the pump may cause the latest readings to rise a notch or two.

The Consumer Sentiment Index show that confidence suffered from the partial federal government shutdown in January. The 2.6 point increase to 93.8 in February still left it at its lowest level in a year-and-a-half. In spite of the strength in the labor market, consumers’ confidence in the economy has worn thin. Confidence is still high, but off the peaks of the past two years.

The same will probably be true for the NFIB Small Business Optimism Index for February at 6:00 ET on Tuesday. The should be some recovery after the stumble to 101.2 in January created by the shutdown, however, with the expansion cooling back to modest growth, it is unlikely that there will be an immediate rise in a burst of relief.

The data on retail and food sales in January at 8:30 ET on Monday could start the year off with a gloomy report. Motor vehicle sales were sluggish, the shutdown meant that a lot of discretionary spending was off the table, consumers that were not inclined to spend in December were no more so in January, and expectations for late tax refunds meant that those who might have spent in anticipation put off buying.



On Wednesday at 10:00 ET, the quarterly data on e-commerce sales is expected to tell us what we already know – consumers continued to increase their retail activity online, especially for the holidays.

Data on initial jobless claims for the week ended March 9 at 8:30 ET on Thursday and the data on Job Openings and Labor Turnover (JOLTS) in January at 10:00 ET on Friday will offer the fresh information about the labor market. Claims should remain around the 220,000-mark with little to shift them one way or another. The JOLTS data is for January which was a big month for hiring and thus will not tell us much about what conditions were behind the February Employment Situation.

The New York Fed’s Empire State Manufacturing Survey for March at 8:30 ET on Friday will lead off the District Bank surveys for the factory sector. Unlike most of the other Districts, after the first warning shot of a slowdown in December from November, activity has been middling and fairly consistent as expressed by its general business conditions index. Another mediocre month would actually be a good sign that activity has leveled off at a slower pace of expansion that still suggests modest-to-moderate growth.

The February data on industrial production and capacity utilization for February at 9:15 ET on Friday could be another disappointment as manufacturing will not get a boost from motor vehicle production, while mining may improve a bit due to higher prices for energy commodities and utilities output should gain on another month of wintery temperatures.

New orders for durable goods in January at 8:30 ET on Wednesday is also expected to reflect orders that didn’t arrive due to the shutdown. The transportation component which has been fairly strong in the past two months due to nondefense aircraft could lack much support from that sector. If it gets a boost, it will be from defense aircraft. Boeing did not fully identify all the buyers of the 46 aircraft in January, but it is a good bet that most if not all were.  That may continue to be a theme in the February data after the Aero India expo on February 20-24.

The release of the data on single-family home sales in January at 10:00 ET on Thursday should bring the numbers nearly up-to-date with the February data set for release at 10:00 ET on Friday, March 29. Sales of new homes picked up in December. If January puts the level near or above the 621,000 in December, it will be an indication that the slump in the housing market in the fall of 2018 was mainly due to higher mortgage interest rates that have since come down.

There will be nothing in the week from Fed policymakers during the communications blackout period in advance of the March 19-10 FOMC meeting. It is somewhat unfortunate that this begins just after the release of the out-of-character employment data for February. However, it does not meaningfully change the outlook for the meeting for no change in rates.


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