U.S. economic data released this week shows good momentum at year-end 2017, and a solid start for 2018. The extremely cold weather freezing much of the country in late December shows up, even after normal seasonal adjustment.
Industrial production jumped by 0.9 percent in December, as utility output surged with the December cold snap. Utilities ramped up output by 5.6 percent in December. Mining output gained 1.6 percent, consistent with higher crude oil prices and strong U.S. production. Manufacturing output inched up by 0.1 percent in December, the fourth consecutive monthly gain. Motor vehicle assemblies increased by 1.7 percent in December, to an 11.11 million unit annual rate.
Housing starts fell by 8.2 percent in December, to a 1,192,000 unit annual rate. There was a significant 11.8 percent decline in single-family starts for the month that is likely weather related. Multifamily starts gained a moderate 1.4 percent for the month. Total permits for new residential construction were little changed, down 0.1 percent in December. Single-family permits were up for the fourth month in a row, gaining 1.8 percent. This shows some momentum in single-family construction even with the weak starts in December. Multifamily permits fell in December by 3.9 percent after declining in November. Multifamily construction activity has been rangebound since mid-2015. Many regional markets remain oversupplied.
According to the National Association of Home Builders, builder confidence remained elevated in January, easing slightly from a robust December level.
Labor indicators remain consistent with very tight supply. Initial claims for unemployment insurance fell by a sizeable 41,000 for the week ending January 13, to hit 220,000, the lowest level since February 1973. Continuing claims gained 76,000, for the week ending January 6, to hit 1,952,000.
Consumer sentiment eased in January, for the third consecutive month, according to the preliminary report from the University of Michigan.
Mortgage applications improved in early January, increasing by 4.1 percent for the week ending January 12. Purchase apps were up 2.7 percent, while refis gained 4.4 percent. We expect to see soft December home sales, but, so far, January looks set for a rebound.
Regional manufacturing surveys show positive conditions in early 2018. The Federal Reserve Bank of Philadelphia’s current activity index for manufacturing eased from a very strong 27.9 in December, to a still strong 22.2 in January. The New York Fed’s Empire State Manufacturing Survey showed that their general business conditions index did the same thing, easing from a very strong 19.6 in December to still strong 17.7 in January.
The fed funds futures market shows a very low 1.5 percent implied probability of a fed funds rate hike on January 31. The cumulative odds of a March 21 rate hike jump to about 74 percent. After that, the next hike may come on June 13.
For a PDF version of this report click here: Comerica_Economic_Weekly_01192018.
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