Consumer Price Index

Last week’s average hourly earnings set the pace for February’s inflation readings, where the reading is subdued. Both the CPI and core CPI, increased by only 0.2 percent as was expected with the yearly rate at 2.2 percent overall; also expected. But, the core was only at 1.8 percent for a reading 1 tenth under economists’ predictions. Transportation costs held down prices in February with as the component remained unchanged following its strong gain in January. New vehicle prices fell 0.5 percent in the month with used car prices down 0.3 percent both resulting from the flat consumer demand for vehicles. Communication costs were weak as well, with wireless telephone services, which began to jump this same time last year, down 0.5 percent in the month. Medical care fell 0.1 percent in the month with recreation flat. Showing price strength for a second month is apparel led in February by men’s apparel in particular apparel for boys. Housing rose 0.3 in the month though the closely watched owners’ equivalent rent subcomponent gained only 0.2 percent. Until wages get moving, overall inflation may continue to run flat with only a slight hint of upward pitch.

Mortgage Applications

Despite yet another uptick to mortgage rates this week, as rates rose as seasonally adjusted 3 percent in the week off March 9th. This raises the year on year gain in the unadjusted purchase index by two percentage points form the prior week back up to 3 percent. Applications for the more interest sensitive refinancing share of mortgages fell 2 percent in the week Taking the refinance share of mortgage activity down 1.7 percentage points to 40.1 percent; its’s lowest level since September 2008. The mortgage rate is now at the highest level since January 2014.

PPI

Prices at the wholesale level proved soft in February only up an as expected 0.2 percent and down from January’s 0.4 percent gain. Year on year, producer prices rose 1 tenth to 2.8 percent which is still down from the 3.1 percent rate hit late last year. Goods prices fell 0.1 percent in February with energy also down as well as good which shows an unusual 27 percent monthly plunge for wholesale vegetables. Trade service prices fell 0.2 percent for the second decline in three months in closely watched results that point to weakness. Construction prices managed only a 0.1 percent February gain with furnished goods prices for light trucks, cars, and computers all falling sharply.

Retail Sales                                     

The big tax cut isn’t being passed to the nation’s retailers. Retail sales once again missed expectations badly, at minus 0.1 percent in February vs. economists’ predictions for a 0.4 percent gain and a low estimate for a 0.1 percent gain. The job market may be high and confidence near long term time highs, but the consumer is definitely not on a spending spree. Department stores were especially weak in February, down 0.9 percent with furniture stores also weak, down 0.8 percent and sales at health and personal care stores down 0.4 percent. What isn’t a surprise is the fourth straight month of declines at vehicle dealers, down a sharp 0.9 percent that re-emphasizes the effect of the spike in the hurricane season which helped to pull sales forward.  Sales of gasoline are also a negative, down 1.2 percent with food sales down 0.1 percent. The positives are led by nonstore retailers where sales after a sharp January fall following the positive holiday season, jumped a monthly 1 percent. Building materials are also a positive, up 1.9 percent that reverses its 1.7 percent decline in January. Restaurants are another positive but only barely at a 0.2 percent monthly gain which follows January’s marginal 0.1 percent improvement.

Business Inventories

Inventory growth proved strong in January up 0.6 percent led by a 0.8 percent gain for wholesalers and a 0.7 percent build for retailers and including a 0.3 percent inventory rise at manufacturers. Builds in February and March, however, are not certain given a decline in total sales which fell 0.2 percent and which does not point to the need for restocking.

Jobless Claims

Jobless claims continue to point to strength in the labor market where initial claims are down 4,000 in the week of March 10th to 226,000. The four-week average at 221,500 is down for the seventh time in the last nine week sand is nearly 7,000 lower than it was a month ago. This is a favorable early indication for the March employment report. Continuing claims also remain very favorable, at 1.879 million in lagging data for the week of March 3rd with this four-week average down a noticeable 17,000 to a 1.891 level that is nearly 30,000 below the month ago comparison. The unemployment rate for insured workers remains very low at only 1.3 percent.

Import and Export Prices

Import prices, inflated by the yearlong decline in the dollar, continue to offer what may prove to be an early and, from the Fed’s perspective, a welcome indications of price pressures. Import price rose 0.4 percent in February, hitting economists’ high estimates and a gain that comes despite the 0.5 percent decline in prices of petroleum imports. Excluding petroleum, import prices rose 0.5 percent for a second straight month which is a very hot reading for this factor. Prices of furnished imports are showing increasing lift with capital good up 0.6 percent in the month and consumer goods showing pressure as well, up 0.5 percent. Industrial supplies have also been climbing including related durables which rose 0.9 percent in a reading that includes imported primary metals. Export prive4s rose a monthly 0.2 percent and got a boost from agricultural prices which rose 0.6 percent. Traction for selling prices is less noticeable than on the import side, led in February by a 0.3 percent gain for consumer goods which, however, is a small category for US business. February price data were uniformly soft before this import data, as it supports the Fed’s view that rising imported inflation should help prices move to their 2 percent inflation target over the course of the year.

Housing Market Index

Home Builders remain extremely optimistic but a little less so in March at an index score of 70 which his at economists’ low end of estimates. The present sales component held steady at 77 though future sales slipped 2 points to 78 with traffic, which ahs been the swing component in recent months down 3 points but still over 50 at a constructive level of 51. Composite data show all regions over 50 led by the West at 78 with the Northeast the lowest but still at a very respectable level of 56.

Housing Starts

Homes sales turned lower in January as did housing starts and permits in February. Housing starts fell 7.0 percent in the month to a much lower than expected annualized rate of 1.236 million while building permits fell 5.7 percent to 1.298 million which is also much lower than expected. Single family homes are the key component in this report and permits fell 0.6 percent to an 872,000 rate. Yearly growth remains in the mid-single digits but is now under 5 percent at 4.6 percent. In a positive, single family starts, which are key to restocking the new home market rose 2.9 percent to a 902,000 rate which is up 2.9 percent from this time last year. Single family completions rose 3.0 percent in the month to 895,000 and will offer immediate supply to the market. Multi-family permits fell 14.8 percent but at a 426,000 rate are still up 10.6 percent year on year. Starts however, fell 26.1 percent to 334,000 and are down a yearly 18.7 percent. Completions here are also positive, up 19.4 percent to a rate of 424,000. Besides completions, another positive is homes under construction up fractionally to 1.115 million, a new expansion high. The bulk of this report is unexpectedly soft and confirms that the housing sector, despite strong year end momentum and a very strong jobs market opened 2018 on the defense getting no help from rising mortgage rates which are at 4-year highs.

Consumer Sentiment

Consumer sentiment has been showing less strength over the last year than other confidence readings but now the report is being driven especially by the current condition assessment, is beginning to gain momentum. The preliminary index for March jumped more than two points to 102.0 which is a 14-year high. Current conditions, where strength hints at ongoing strength for both consumer spending and employment, is up nearly 8 points to 122.8 and reflects growing confidence in the lower income bracket. Expectations, which is the other component of the index, is actually down 1.4 points to 90.0 and reflects income doubts among the higher brackets. A very important sign of strength is in inflation expectations which are up 2 tenths to 2.9 for the year ahead outlook though unchanged at 2.5 percent for the five-year outlook. The year ahead gain is an important reading and is likely to be taken notice of at next week’s FOMC meeting.

JOLTS

JOLTS proved volatile in the January report, headlined by a far higher than expected 6.312 million for job openings but including heavy downward revisions to prior months. Openings are a very wide 729,000 above hires which came in at 5.583 million. This spread suggests that employment that employers have lots of jobs to fill and may be having a hard time finding the right candidates. Details include rising openings for construction and for warehousing and especially for professional and business services where gains point to general and immediate demand for labor. Another detail is the quits rate which his little changed at 2.2 percent and not- despite how strong demand for labor is- pointing to confidence among workers to shift jobs for higher pay.