It was another busy day of economic data, with producer prices taking center stage. Let’s recap.
January’s headline producer price index jumped 0.7% MoM and 6% YoY. It marks the largest increase since June and topped the 0.4% expected. Excluding food and energy, core prices rose 0.5% vs. the 0.3% estimate. In addition, the core number excluding trade services increased by 0.6% vs. the 0.2% expected. ♨️
It doesn’t get as much attention as other inflation metrics but can serve as a leading indicator because its measures the prices producers pay on the open market. Disinflation continues as this is the seventh straight month of declines. But today, the market appears to be reacting to the higher MoM increase than expected rather than the longer-term trend in the data.
The U.S. housing market continued to cool in January. Housing starts fell 4.5% MoM and 21.4% YoY to a seasonally adjusted annual rate of 1.31 million. Single-family housing starts, which account for the bulk of homebuilding activity, were down 4.3% MoM. Building permits rose just 0.1% MoM in January and are still down 27.3% YoY to a seasonally adjusted annual rate of 1.339 million. 🏘️
Falling mortgage rates have buoyed homebuilder confidence over the last few months, but the market looks like it will remain soft with rates back on the upswing.
U.S. manufacturing’s outlook remains bleak. The Philadelphia Fed manufacturing index unexpectedly fell to -24.3 in February, widely missing the consensus estimate of -7.4. 🏭
Digging into the numbers, the indexes tracking new orders, shipments, delivery times, and employee headcount all weakened. In addition, inflationary pressures remained as the prices paid index rose for the first time since April 2022, and prices received fell to their lowest level since February 2021. This indicates a slowdown in manufacturing activity and slimmer margins for producers.
Labor market conditions remain historically tight, with initial jobless claims spending their fifth straight week below 200,000. Continuing claims rose 16,000 to 1.696 million. 👨💼
Meanwhile, several Fed members spoke today. Cleveland Fed President Loretta Mester made headlines. In her speech, she noted there was a compelling case for a 50 bp hike at the last meeting and that the Fed still has more work to do on the inflation front. 📝
The hotter-than-expected producer prices mattered most to the market, given much of the other data is in line with current trends.