Originally published at The Boock Report
Industrial production in February saw a nice bounce back after weakness in January. The headline print was up 1.1% m/o/m vs the estimate of up .4%, only partially offset by a two tenths downward revision to January. The manufacturing component was the key driver as it saw a gain of 1.2% m/o/m vs the forecast of up .5% (Jan was revised down by also 2 tenths). The main contributor to this was a 3.9% m/o/m spike in auto production while machinery, computer/electronics rose too. Outside of manufacturing, we saw 4.3% m/o/m rise in mining and a drag from utility output as the weather thawed out.
Capacity utilization did improve to 78.1% but it is still below where it was in 2014 at 79.1% and remains below the very long term average of about 80%. This might help to explain why capital spending still remains sluggish even with the new tax incentive to change that.
Bottom line, this bounce in production joins the rebuild in inventories that we’ve seen the past few months which came after a big draw due to the storms last fall. We can also throw in the weak dollar and strength in overseas economies as helping out. I don’t though expect the auto production gain seen in February to continue because sales are slowing for new cars, especially as competition with used ones really heats up with so many this year and next coming off lease. The improvement in mining and machinery certainly correlates with the rise in energy prices and industrial materials. Semi production has helped contribute to the 5.6% y/o/y gain in computers/electronics. Big picture, notice that manufacturing production has yet to surpass its 2007 peak.
MANUFACTURING IP
This upside in IP could help bring Q1 GDP estimates back above 2%. The Atlanta Fed in particular is at 1.9%.
The preliminary UoM consumer confidence index for March improved to 102 from 99.7 and that was 2.7 pts better than expected. We are now at the best level since 2004 (it peaked at 112 in January 2000). The components though were mixed as Current Conditions jumped by almost 8 pts while Expectations was lower by 1.4 pts. I do want to highlight this on the inflation theme I keep harping on: one year inflation expectations rose two tenths to 2.9%. That is the most in 3 years. I also need to highlight what is potentially great for employees but also adds to the overall inflation story (especially if productivity doesn’t improve): those expecting Higher Income rose to the highest on record in this survey dating back to 1978. The underline is mine. Those expecting more employment rose 1 pt to the best since 1984.
Those expecting HIGHER INCOME
I can’t explain this but Business Expectations Over the Last Few Months fell 18 pts m/o/m to a 3 month low. Maybe that correlates to a modest Q1 growth rate vs the initial belief that 2018 would start off much stronger.
Even with the rise in confidence, the answers to spending plans remained mixed. Those that said it’s a good time to buy a major household item rose 8 pts to the best since April 2000. There was no change in those planning to buy a car/truck. With housing, those that said it’s a good time to buy a house rose 5 pts to match a 5 month high BUT, those that said it’s a good time to sell a house was up by 6 pts to the most since August 2005 and 1999 before that.
Bottom line, consumer confidence is very good and expectations for rising incomes and employment is the main reason. This though comes with higher inflation expectations and we know the upside risk to this is in turn rising incomes if companies can’t offset with higher productivity. I do want to repeat my belief that consumer confidence indices should not be used as a guide as to how consumers will behave in coming months and quarters. That said, we have seen 3 punk months of retail sales. I’m hoping as consumers get tax refunds and see that they are paying less income taxes that spending will improve.
The JOLTS data on job openings in January saw a big jump to 6.3mm. That was 400k more than expected and brings it to the highest amount of job openings on record since this data set started in 2000. Construction alone saw a need for 100k more workers vs December while manufacturing also saw more demand for labor. We hear all the time that there is shortage of truck drivers that is straining supply chains. Well, the transportation sector saw job openings spike by 113k m/o/m.
Bottom line, the demand for labor is pretty strong but the issue of supply remains. Yes, we saw increases in participation in the February jobs report (this data today is for January) and hopefully more of these job openings were filled by the labor supply still on the sidelines.
JOB OPENINGS
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