I’ve hit on the sentiment theme a few times now, and I hope I haven’t suggested a bit of pessimism isn’t warranted. This week’s economic releases certainly emphasized the fact that we’ve hit a soft patch in the economic data. Most of the respectable people I’ve read seem to believe that it’s just a slowdown in a sub-par recovery–nothing more for now. Naturally, the more one reads that the more wary one must become. Just like the soured sentiment toward stocks, sentiment can swing either way with respect to the economy, and if most commentators are too sanguine on the current weakness that can present its own problems.
Inflation – both the Consumer and Producer Price Indexes were higher than expected–on all fronts; that is, the core and headline inflation rates were all slightly higher than expected.
Housing – both Building Permits and Housing Starts were better than expected, but both are at such low, relative levels that it hardly matters (chart below). Sure, it’s better than them going the other direction, but it’s little to write home about. There was a 13% jump in Mortgage Applications, but that’s largely because of a continued rise in refinancing activity, not the more-important-to-housing purchase activity. Still, refinancing puts more money into consumers’ pockets, and we need that.
Regional Indicators – the Empire State Manufacturing and Philly Fed reports both now reside in the contraction zone, the one confirming the other.
- Initial Jobless Claims fell more than expected, but they remain stubbornly above the 400,000 mark.
- Industrial Production rose less than expected (+0.1% v. +0.2%).
- Capacity Utilization fell (to 76.7%) instead of rose (77.0%), as economists had expected.
- University of Michigan Consumer Confidence fell sharply (from 74.3 to 71.8)
- Leading Economic Indicators, however, rose by +0.8%, whereas economists had expected a drop to -0.3%.