March 24, 2017

The Economy: Is the ‘Hard Data’ Getting Better?

Filed under: Economy,Taxes & Government — Tom @ 9:56 am

Business optimism and consumer confidence have been riding high.

That’s nice, but at some point the economy needs to see tangible, hard-data improvement — and, other than in the jobs data for the first two months of this year (a big deal, but not by itself decisive), we haven’t seen much of that.

That may — emphasis may — be changing.

Examples, pro and con:

  • Industrial production was flat in February. But January was revised from -0.3 percent to -0.1 percent. Overall, that’s not impressive, but two of three individual components are. With a relatively mild winter, utilities production is unsurprisingly down (by almost 6 percent in each of this year’s first two months). But manufacturing advanced by 0.5 percent in both January (revised up from +0.2 percent) and February (strongest two-month run since early 2014), and mining, which includes oil & gas, increased by over 2 percent each month.
  • Seasonally adjusted durable goods orders and shipments increased by a Jan.-Feb. combined 4.0 percent and 0.2 percent, respectively. As with industrial production, January’s orders were revised up to 2.3 percent from 1.8 percent. The raw orders data is even stronger. January’s raw number is the second-best January on record; February’s raw figure is the best since 2013. Zero Hedge is less impressed, but didn’t focus on the raw data.
  • January and February new home sales were strong, with February’s annual rate of 592,000 beating expectations by about 5 percent. The combined Jan.-Feb. actual sales of 90,000 is the best performance since 2008.
  • On the downside, seasonally adjusted existing home sales in February fell, and raw February sales were barely higher than a February 2016.
  • Home construction data (permits and starts) has been improving. Both key metrics are at their highest levels sine 2007. But the raw data in February was weaker than the seasonally adjusted results would lead one to believe, and I don’t think the fact that February 2016 had an extra business day sufficiently explains that.
  • Retail sales in February increased by only 0.1 percent. But again, in what may be a harbinger of a Trump-era trend consistent with previously Republican and conservative administrations, prior data was revised up. In this case, January’s originally reported 0.4 percent increase in retail sales was revised up to 0.6 percent. Ex-auto sales went from 0.8 percent to 1.2 percent. Combined Jan.-Feb. sales are 3.7 percent ahead of the first two months of last year, which is a far healthier increase than we’ve generally seen during the past few years.
  • Again on the downside, initial unemployment claims are on the rise, but not to anything resembling a danger level. The most recent weekly figure is 261,000 seasonally adjusted claims, up from the 230s a few weeks ago. There’s usually not any reason to be concerned until the weekly figure starts consistently topping 300K.

For the first time in a while, there are more pros than cons in the above list, but it’s way too early to declare a positive trend, especially given current first quarter GDP estimates of an annualized 0.9 percent at the Atlanta Fed and 1.2 at Moody’s.

But the retail sales figures, job growth results, and the trend towards upward revisions of previously reported data during the first two months would seem to indicate that this GDP will come in higher than those two estimates — perhaps not when initially reported in late April, but by the time the second and third estimates come out in May and June.

Still, if it isn’t 3 percent or more, it shouldn’t be considered impressive, even after considering the first quarter’s supposed (and I believe bogus) “residual seasonality” problem.


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