Deller's two cents: All signs except employment show economic growth. It is generally a rule with recoveries that employment growth lags behind, but for the current recovery, the lag is particularly long and frustrating. Notice the free webcast on future job growth, if you are available it might be worth tuning in.
Economic Week in Review: Recovery momentum continues
February 18, 2011
The Federal Reserve grew more confident in the strength of the U.S. economy, but not enough to pull back from its second round of quantitative easing. High unemployment remained a challenge. Rising commodity prices began to tug at the pockets of consumers and producers, but general inflation in the United States was not yet a concern. For the week ended February 18, the S&P 500 Index rose 1.0% to 1,343 (for a year-to-date total return-including price change plus dividends-of about 7.2%). The yield of the 10-year U.S. Treasury note fell 5 basis points to 3.59% (for a year-to-date increase of 29 basis points).
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Retail sales continue upward trend
Retail sales rose again in January, although not as strongly as in recent months. Sales increased 0.3% for the month after jumping 0.5% in December.
Gas stations, grocery stores, and non-store retailers led the pack with the highest sales. Meanwhile, building supply stores saw the sharpest drop, most likely because of the snow that affected a large part of the country throughout the month. Sales also fell at sporting goods and hobby stores and at restaurants.
Business inventories up slightly
Business inventories rose 0.8% in December from a month earlier, slightly more than analysts expected. Manufacturing and wholesale inventory levels increased 1.1% and 1.0%, respectively. Retail inventories increased 0.4%. Total business sales advanced 1.1% for the month. The total inventory-to-sales ratio, a measure of how long it would take to deplete current levels of inventory at current levels of demand, remained steady at 1.25.
Producer and consumer prices rise
Higher food and energy prices pushed up the cost of producing and purchasing goods and services. The producer price index, which measures how much manufacturers and wholesalers pay for finished goods and materials, jumped 0.8% in January. Core producer prices-which don't take volatile food and energy prices into account-were up 0.5% for the month. The increase in core prices was mostly attributable to higher pharmaceutical prices, which rose 1.4% in January.
The consumer price index-a measure of a basket of products and services, including housing, electricity, food, and transportation-rose 0.4% in January. Core consumer prices, excluding food and energy, advanced 0.2%, a 1.0% increase from a year ago.
Although the risk of inflation is still low, the rise in prices suggests that the economic recovery is picking up speed.
"There are real concerns about inflationary pressures building in emerging markets; however, this in itself may not become a significant risk factor for U.S. inflation because the pass-through of emerging-market inflation to U.S. import prices is pretty low," said Vanguard economist Roger Aliaga-Díaz. "That is, exporters from emerging markets generally may not want to risk their U.S. market share by charging higher prices. Also, some of the countries that are showing the largest inflationary threats represent only a small portion of total U.S. imports."
Apartment construction takes off
Housing starts were up more than expected in January, increasing by an annualized 14.6%-or 596,000 homes-from December. The multifamily home sector, which includes apartment buildings, led the way with an increase of almost 80% for the month.
Construction of single-family homes saw a slight drop of 1% for the period-not too bad, considering that most of the country was hit with brutal snowstorms throughout January. Building permits, which are a good indication of future housing starts, were down for the month, declining 10.4%.
Industrial production dips
Industrial production fell 0.1% in January after jumping 1.2% in December, when unusually cold weather and heating demand boosted production at utility companies. In January, when temperatures moved closer to normal, utility output dropped 1.6%. Mining output dropped 0.7%. Factory production was a bit stronger, with a 0.3% gain, thanks to increased demand for motor vehicles and parts.
Fed improves growth forecast
Minutes from the Federal Open Market Committee meeting on January 25-26 indicated that the U.S. economic recovery was "firming" but not yet sufficient to make a significant dent in the unemployment situation. The committee planned to maintain its asset purchase program because it expected the labor market to remain soft and inflation below target. Still, it was more optimistic about the economy this year and revised upward its earlier GDP growth forecast from 3.0%-to-3.6% to 3.4%-to-3.9%. The inflation forecast was essentially unchanged at 1.3%-to-1.7%. Despite higher commodity prices, the committee said underlying measures of inflation remained "subdued" and left interest rates unchanged at near zero.
Leading indicators still on the rise
The Conference Board's index of leading economic indicators inched up 0.1% in January-a small gain, but one that extended the upward trend that began in late 2010.
"The economy gained some momentum in late fall, and the latest data suggest that trend will continue," said Ken Goldstein, an economist at The Conference Board. He noted that the increase over the past six months totaled a strong 3%. The index consists of ten financial- and consumer-related measures and is designed to signal peaks and troughs in the business cycle.
Six of the ten index components rose during the month. The positive contributions of the financial components were just enough to offset weakness in housing permits and labor-market indicators.
The economic week ahead
The highlight of next week's economic reports will be Friday's release of gross domestic product figures for the fourth quarter of 2010. Other reports expected next week include: The Conference Board's index of consumer confidence (Tuesday), existing-home sales (Wednesday), durable goods orders (Thursday), and new-home sales (Thursday).
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Steven C. Deller
Professor and Community Development Economist
Department of Agricultural and Applied Economics
515 Taylor Hall --- 427 Lorch Street
University of Wisconsin-Madison/Extension
Madison, WI 53706
608-263-6251
"I started out with nothing and I have most of it left."
Seasick Steve
