U.S. retail sales dropped in February and the prior month’s gain was revised to a decline, calling into question the narrative that bigger gains in consumer spending would propel economic growth at the start of 2016. The 0.1% decline in purchases followed a revised 0.4% January decrease, Commerce Department figures showed Tuesday. Sales excluding gasoline rose 0.2% in February, reversing the previous month’s retreat.
Wednesday was marked by Building Permits, Housing Starts and Industrial Production figures. The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.2% in February on a seasonally adjusted basis, in line with market forecasts. The energy index continued to decrease and was the major cause of the seasonally adjusted decline in the all items index, more than offsetting increases in the indexes for food and for all items less food and energy. The gasoline index fell sharply, declining 13.0%, and the indexes for fuel oil and electricity also decreased, though the index for natural gas rose.
The Commerce Department says housing starts rose 5.2% last month to a seasonally adjusted annual rate of 1.18 million units.Construction had fallen 3.4% in January and 1.4% in December, declines that had been blamed in part on winter weather. Applications for building permits, a gauge of future activity, fell 3.1% to an annual rate of 1.17 million units after a flat reading in January and a 6.1% drop in December. The decline in building permits, unless reversed, could signal future trouble in an industry that was a bright spot for the economy last year.
Industrial production decreased 0.5% in February after increasing 0.8% in January. Analysts were predicting 0.2% decrease. Sizable declines in the indexes for both utilities and mining in February outweighed a gain of 0.2% for manufacturing. The output of utilities dropped 4.0%, as unseasonably warm weather curbed the demand for heating. Mining production fell 1.4% and has decreased nearly 1.3% per month, on average, over the past six months.
However, the focus of the session was on FOMC interest rate decision. The Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.
“The committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen,” the FOMC said. “However, global economic and financial developments continue to pose risks.” “A range of recent indicators, including strong job gains, points to additional strengthening of the labor market,” the FOMC said. The Fed reiterated that the “stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”
Thursday brought Unemployment Claims, Philly Fed Manufacturing Index and Current Account. In the week ending March 12, the advance figure for seasonally adjusted initial claims was 265,000, an increase of 7,000 from the previous week's revised level, mostly in line with market forecasts. The previous week's level was revised down by 1,000 from 259,000 to 258,000. The 4-week moving average was 268,000, an increase of 750 from the last week's level.
Separate report on Philly Fed Manufacturing Index showed that index increased from a reading of -2.8 in February to 12.4 this month, its first positive reading in seven months, well above predictions on increase to -1.4. Both the current new orders and shipments indexes also showed improvement this month. The current new orders index returned to positive territory, increasing 21 points to 15.7. Nearly 37 percent of the firms reported an increase in new orders this month.
Also, Current Account data was released. Current Account deficit decreased to $125.3 billion in the fourth quarter of 2015 from $129.9 billion (revised) in the third quarter. Analysts were expecting decrease to $117 billion. The deficit decreased to 2.8% of current-dollar gross domestic product (GDP) from 2.9% in the third quarter. The decrease in the current-account deficit was accounted for by decreases in the deficits on goods and secondary income and an increase in the surplus on services. These changes were partly offset by a decrease in the surplus on primary income.
On Friday, only Consumer Sentiment figures were released. Consumer confidence declined in the first half of March as lower-income Americans grew more concerned about prospects for the U.S. economy and higher gasoline prices. The University of Michigan’s preliminary sentiment index fell to a five-month low of 90 from to 91.7 in February. The median projection in a Bloomberg survey of economists called for 92.2. The group’s measures of year-ahead and longer-term inflation expectations picked up.
This week markets will be looking at:
Existing Home Sales (Monday 16:00)
New Home Sales (Wednesday 16:00)
Unemployment Claims (Thursday 14:30)
Durable Goods Orders (Thursday 14:30)
Final GDP (Friday 14:30)
