U.S. Industrial Production Rises U.S. industrial production rose in March, moving beyond a lackluster winter and showing potential to gain strength in the coming months.
Industrial production, which measures the output of U.S. manufacturers, mines and electric and gas utilities, increased a seasonally adjusted 0.7% in March from the prior month, the Federal Reserve said Wednesday. Capacity utilization, a gauge of slack across industries, rose 0.4 percentage point to a 79.2% rate.
Manufacturing output—the largest component of industrial production—rose 0.5% in March, following a 1.4% gain the month before. While manufacturing is only a fraction of domestic economic activity, many economists view it as a good indicator of future demand.
For the first quarter this year, industrial production moved up at an annual rate of 4.4%, just slightly slower than the prior three months, the Fed said.
The Fed revised February’s overall reading up to 1.2% from 0.6% due to stronger gains for durable goods manufacturing and for mining.
The capacity utilization rate rose to 79.2% last month from a downwardly revised 78.1%. That remained below the 80.5% high averaged in 2007. In the factory sector, the capacity utilization rate improved to 76.7% and remained below the 78.6% level before the recession. Total industry capacity rose a roughly stable 2.2% y/y while factory sector capacity increased 2.0%.
Even a recovering US economy may not pull inflation back up towards the Federal Reserve’s 2 per cent target, Janet Yellen has said, in remarks that raise the possibility of easy monetary policy for longer than currently expected.
In a speech to the Economic Club of New York on Wednesday, the chairwoman of the Fed said that high levels of unemployment had put less downward pressure on inflation than expected, so higher employment might not pull prices up again.
“We anticipate that, as labour market slack diminishes, it will exert less of a drag on inflation,” said Ms Yellen. “However, during the recovery, very high levels of slack have seemingly not generated strong downward pressure on inflation.” (…)
Ms Yellen said she still thought there was a lot of spare capacity, or slack, in the labour market. She noted the unemployment rate, which at 6.7 per cent is still around 1 percentage point above the Fed’s view of full employment; the large share of the workforce with part-time jobs who would prefer full-time work; and the high proportion of long-term unemployment.
She also weighed into the contentious argument about whether people who have dropped out of the labour force will come back.
“Although economists differ over what share of those currently outside the labour market might join or rejoin the labour force in a stronger economy, my own view is that some portion of the decline in participation likely represents labour market slack,” she said.
Ms Yellen noted that the recovery had continued from 2010 to 2012, despite shocks from the eurozone and fiscal tightening in the US, but only because the Fed was willing to provide extra stimulus via asset purchases. She said that was still the case. “[The Federal Open Market Committee] stands ready to adjust the pace of purchases as warranted should the outlook change materially.”
She struck an upbeat tone on the economy, but said there was still further to go.
“It is a sign of how far the economy has come that a return to full employment is, for the first time since the crisis, in the medium-term outlooks of many forecasters,” she said.
“It is a reminder of how far we have to go, however, that this long-awaited outcome is projected to be more than two years away.”
Two other important things she said:
In answer to a question posed after her speech, she added the Fed’s focus should be on lifting inflation to the 2% goal, not holding it down.
(…) the FOMC is well aware that inflation could also threaten to rise substantially above 2 percent. At present, I rate the chances of this happening as significantly below the chances of inflation persisting below 2 percent…
She emphasized that slack in labor markets is holding down wages. “Wage gains continue to proceed at a historically slow pace in this recovery, with few signs of a broad-based acceleration,” she said.
TRANSPORTATION COSTS SURGE
Truckload linehaul rates spiked in March, with the Cass Truckload Linehaul Index surpassing the 120 mark, showing a 6.0% year-over-year increase – the largest in 35 months – and setting a new high. From February, linehaul rates rose 3.7%, displaying an above-normal sequential increase for the fourth straight month. Demand for freight transportation continues to improve while capacity shrinks as carriers continue to exit the marketplace.
The cost of intermodal shipping also continues to rise, with March costs reflecting a 1.8% upsurge over the same month last year and a 2.5% increase from February. Like our truckload index, our intermodal index has also reached a new peak. (Cass)
The chart from Doug Short strongly suggests that we are near the cyclical low:
Big Banks Ramp Up Business Lending Banks are boosting their lending to businesses, providing fuel for companies to increase spending on workers and equipment as the economy improves.
Earnings results from the six largest U.S. commercial banks by assets, which include J.P. Morgan ChaseJPM +0.84% & Co., CitigroupInc., C -0.27%Bank of America Corp.BAC -1.59% and Wells Fargo & Co., show a 8.3% increase in commercial loans outstanding in the first quarter from the same period a year earlier. (…)
Andrew Cecere, chief financial officer ofU.S. Bancorp, USB -1.32% the fifth-largest U.S. lender by assets, said in an interview Wednesday the bank has seen increased demand for commercial loans from small businesses to midsize companies and large corporations. The Minneapolis bank posted a 9.7% increase in commercial loans outstanding in the quarter, to $113.8 billion, helping to drive a rise in first-quarter net income. (…)
Banks, meanwhile, are making it easier to borrow. Average rates on new fixed-rate 10-year commercial loans dropped to 3.89% in March from 4.51% in January, according to banking-software and data company Automated Financial Systems Inc.
A January survey of senior bank-loan officers by the Federal Reserve found that 14% of banks had relaxed their standards for commercial and industrial loans to borrowers of all sizes in the fourth quarter. No loan officers reported tightening their standards. (…)
Other big banks also reported stronger demand for loans from businesses. For example, Wells Fargo, the fourth-biggest U.S. lender, posted a 5.9% increase in commercial loans outstanding in the quarter to $381.28 billion. The increase was “pretty broad-based,” said Perry Pelos, Wells Fargo’s head of commercial banking, in an interview Wednesday. (…)
Some banks reported that businesses tapped their credit lines to a greater extent in the first quarter, indicating they are more confident about their debt situations or are preparing to spend more on their businesses. (…)
U.S. Housing Starts Climb 2.8% Home builders stepped up construction for the second straight month in March, but broader trends suggest the market remains in a slump.
U.S. housing starts rose 2.8% in March to a seasonally adjusted annual pace of 946,000, fueled by growth in single-family homes, the Commerce Department said Wednesday. Starts for February were revised higher to a pace of 920,000 from an initially reported 907,000.
But other figures indicated the recovery remains choppy. Compared with a year earlier, housing starts were down 5.9%. And building permits, a bellwether of future construction, declined 2.4% in March from February to a pace of 990,000, marking the fourth drop in five months.
Both housing starts and permits were weaker in March than expected. Economists surveyed by The Wall Street Journal had projected home starts to rise to a pace of 965,000 in March and permits to hold steady at a pace of 1.01 million.
In an encouraging sign, the rise in home starts was driven entirely by a healthy 6% pickup in construction of single-family homes, which could indicate stronger demand among middle-class families. Construction of single-family homes has now risen for two consecutive months after falling sharply in December and January.
Construction of multifamily homes—including apartments and condos—fell 3.1% in March and was flat in February. That sector is particularly volatile and often doesn’t reflect underlying demand in the market. (…)
Other signs point to a struggling housing market. The National Association of Home Builders reported Tuesday that builder confidence in the market for single-family remained downbeat overall.
Sales of previously owned homes fell in February, marking the sixth decline in seven months, the National Association of Realtors reported last month. New-home sales also fell in February, according to the Commerce Department.
INFLATION WATCH
U.S. Consumer Prices Rise Slightly Higher housing and food costs helped lift overall consumer prices last month, a development that could reassure some Fed officials as they roll back their easy-money policies.
The consumer-price index, which measures how much Americans pay for everything from hospital visits to gasoline, advanced a seasonally adjusted 0.2% in March from the prior month, the Labor Department said Tuesday. That was slightly more than February’s 0.1% gain, which economists surveyed by The Wall Street Journal also forecast for March.
Compared with a year earlier, consumer-price inflation accelerated to 1.5% in March from February’s 1.1%. Stripping out volatile food and energy prices, the measure ticked up to 1.7% from 1.6%, putting it closer to the to the Fed’s 2% target and signaling healthier demand across the economy. (…)
March’s uptick in inflation was largely due to rising food and housing costs. Food prices rose 0.4% as droughts in parts of the U.S. and Brazil undermined agricultural output. Housing-cost inflation accelerated to 0.3% in March from 0.2%, indicating demand for housing is straining available supply in many parts of the country.
Gasoline prices fell 1.7% in March, likely the result of a surge in domestic oil production and subdued demand. Prices for new vehicles were flat, while apparel costs rose a meager 0.3%. (…)
Let’s dig a little deeper:
According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.6% annualized rate) in March. The 16% trimmed-mean Consumer Price Index also increased 0.2% (2.4% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report.
Over the last 12 months, the median CPI rose 2.1%, the trimmed-mean CPI rose 1.7%, the CPI rose 1.5%, and the CPI less food and energy rose 1.7%
The median CPI has been rising 0.2% monthly in each of the past 5 months (2.4% annualized). Total CPI has been trending below the median CPI for close to 18 months. It should continue to close that gap and will likely move above the median CPI rate of change in the near future. If you missed the latest PPI report, it should be seen here.
Food, shelter costs accelerating:
The significant deceleration in food inflation between early 2012 and the end of 2013 has played an important role in limiting overall price pressures. Things are turning out to be quite different early in 2014. According to just-released data, the food component of the U.S. CPI surged 0.4% in March, the biggest increase since the autumn of 2011. As today’s Hot Charts shows, annual inflation is now running at just above 1.7%. We think that the ongoing drought in California will pressure food inflation to well over 2% as soon as May. This development is occurring at a time where shelter costs are rising at a post-recession high of 2.7% annually. With the two heavyweights of the CPI rising in unison (shelter is 32% of the CPI and food is 14%), the potential for some inflation pass-trough is greater now than at anytime since the end of the recession given the much improved labour markets. We still think that a stronger U.S. economy coupled with a pick-up in headline inflation will send the 10-year U.S.Treasury yields back above 3% in the coming months. (NBF)
Commodity prices turning back up. The sharp (27%), sustained decline in commodity prices since mid-2011 may have run its course.
The best correlation with commodity prices is world industrial output growth, now recovering (chart from Ineichen Research):
Following a decade of very rapid economic growth, China is set to slow. This has raised concerns that a Chinese rebalancing could lead to lower commodity consumption. The most recent IMF World Economic Outlook looks at the relationship between commodity consumption and income for 41 countries over the period 1980-2013 to gauge prospects for future consumption in China. As today’s Hot Charts show, patterns in energy and metals consumption in China are broadly in line with the predicted values of the IMF regression.
Although the study reveals that metals consumption tends to peak well before that of energy, the current level of per capita GDP in China (around $6,000 USD) remains well below the level that have in the past been associated with falling volume demand. According to the IMF, Chinese demand should continue to rise for the foreseeable future – implying positive spillovers for exporters of commodities. (NBF)
To hire 10 to 15 project coordinators this year, Sabre Commercial Inc. has boosted pay 10 percent and added a 401(k) retirement plan.
“It is an employee’s market,†said John Cyrier, co-founder and president of the 48-employee Austin, Texas-based builder. “We are definitely seeing a labor shortage in Austin and central Texas. I see it only getting worse.â€
Companies across the U.S. from Texas to Virginia and Nebraska are struggling to fill positions with metropolitan jobless rates below the 5.2 percent to 5.6 percent level the Federal Reserve regards as full employment nationally. Competition for workers is prompting businesses to raise wages, increase hours for current employees, add benefits and recruit from other regions. (…)
Unemployment in Austin-Round Rock-San Marcos was 4.8 percent in February, Labor Department figures show. Forty-nine, or 13 percent, of the 372 metro areas reported jobless rates below 5 percent that month, the most for February since 2008, two months after the start of the recession. The lowest was 2.8 percent in Houma-Bayou Cane-Thibodaux, Louisiana, because of offshore-oil exploration in the Gulf of Mexico.
Four years ago, during the worst of the labor-market slump, just two cities had rates below 5 percent. (…)
In Omaha, with a 4.5 percent unemployment rate, the Greater Omaha Chamber is coordinating a program that will increase the number of internships to more than 300 this year from 135 in 2012 at employers including Mutual of Omaha Insurance Co., Union Pacific Corp. and ConAgra Foods Inc. Exposing young people to the city has been an “excellent recruitment tool,†said Sarah A. Johnson, director of talent and workforce initiatives for the chamber.
A tight market “is literally our reality,†said Omaha Steaks International Inc. spokeswoman Beth Weiss. The food seller hired more than 3,000 people for seasonal jobs during the holidays and uses cash bonuses and employee discounts to try to attract workers. (…)
The jobless rate in the Washington metro area, which includes the Virginia cities of Alexandria and Arlington, was 5.1 percent in February, near a five-year low, which means some professional jobs have gone begging.
“The competition for people is really fierce right now,†said Gar Muse, principal with Cooper Carry, an architectural firm that has increased staff to 50 in Alexandria from 40 in 2010 and plans to hire more. Cooper Carry boosted its advertising to seven print and online outlets this year from a single posting and uses social media to promote job openings.
The company also has had to work to keep existing staff. “We have lost a handful of people,†Muse said. “They are constantly being approached and we have had to make some counteroffers.†(…)
Even with hot labor markets in some cities, twenty-nine metro areas still have unemployment rates of at least the October 2009 post-recession peak of 10 percent, including Atlantic City, New Jersey, and Fresno, California.
The national picture is “generally consistent with a slowly improving†job market that is “still far from complete health,†said Rob Valletta, research adviser at the San Francisco Fed, whose work has been cited by Yellen. (…)
The European Union’s statistics agency Wednesday said consumer prices in the 18 nations that share the euro were 0.9% higher than in February, and 0.5% higher than in March 2013. That confirmed the preliminary estimate released late last month, and is the lowest annual rate of inflation since November 2009.
Eurostat said the core rate of inflation—which strips out volatile items such as energy and food—slipped to 0.7% from 1.0% in February, matching the record low reached in December 2013.
Eurostat also said the annual rate of inflation in the broader EU—which includes 10 countries that don’t use the euro—fell to 0.6% from 0.8% in February, its lowest level since October 2009.
Eurostat’s figures show that five eurozone members experienced declines in prices in the 12 months through March, while three members of the EU that don’t use the euro shared the same experience. But other members were on the cusp, with four eurozone members recording inflation rates below 0.5%, as did four EU members that don’t use the euro. Of the EU’s 28 members, only one had an inflation rate in excess of 1.5%: the U.K. where prices rose 1.6%, in the 12 months to March.
China’s Growth Slows China’s gross domestic product growth slipped in the first quarter to its slowest level in 18 months as the world’s second-largest economy continued to downshift.
The 7.4% growth over the year-earlier period was below the 7.7% level seen in the fourth quarter of 2013, and slightly below the target of “about 7.5%” set by China’s leadership for all of 2014. But it came in slightly above economists’ expectations, according to a Wall Street Journal survey of analysts. (…)
Officials at the statistics bureau attributed then slower first-quarter growth data to weak external demand—affected in part by the severe U.S. winter—a struggling real-estate market and structural changes. (…)
Industrial production grew 8.8% in March, slightly below analyst expectations of 9%. This compares with 8.6% year-over-year growth in January and February, which were combined to limit distortions from the Lunar New Year holiday, according to the bureau. (…)
Fixed-asset investment—covering areas such as machinery, land and buildings—edged up to 17.6% in the first quarter, slightly below expectations, compared with 17.9% year-over-year in January-February. Analysts attributed the result in part to problems in the housing sector. (…)
Retail sales, meanwhile, posted 12.2% year-over-year growth for March, in line with the consensus and a modest increase over the 11.8% year-over-year rise seen in January and February.(…)
Electricity, Steel Hint at Economic Uptick in China Though China’s economy grew in the first quarter its slowest pace in 18 months, two proxies-production of steel and electricity-point to some resilience.
Electricity output in March was up 6.2% from a year earlier to 453 billion kilowatt-hours, faster than the combined 5.5% pace of January and February (the two months were counted together to limit distortions from the Lunar New Year holidays). Steel production was up 2.2% to a record 70.3 million tons. That compares with a 0.6% expansion in February and a contraction of 3.2% in January. (…)
The electricity- and steel-growth numbers for March were weaker than last year’s, when the economy expanded 7.7%. Growth in electricity output in March was still well below last year’s average 7.6%. Its 5.8% expansion in the first quarter was slower than broader economic growth. Crude steel production in the month lagged behind last year’s average 7.5% growth rate.
In mid January, I began TAPERING…EQUITIES with this chart from The Short Side Of Long. We have since added 14 weeks to the current bull market, making it the second longest in the last 80 years. I must sadly reckon that I have lived through the 5 longest and worked through the four longest bull markets…
To save you time, I calculated that to make it the longest, this bull would have to keep running until April Fool’s day next year. Here’s something to really look forward to!
And while the Roubinis of this world were getting famous rehashing about the lost decade, equities were compounding at a 25% annual rate. The 5-year gain of 153% is the fifth best in nearly 150 years.
May I point out that the four previous extraordinary market performances have all ended pretty badly for the unprepared. Remember the song Spinning Wheel?
What goes up must come down Spinnin’ wheel got to go ’round (…)
Did you find the directing sign on the Straight and narrow highway Would you mind a reflecting sign Just let it shine within your mind And show you the colors that are real
Believe it or not, these guys also sang More and More, I Can’t Quit Her, Go Down Gamblin’, Back Up Against the Wall, My Days Are Numbered, And When I Die. Their name? Blood, Sweat & Tears (really!)…
…which is what will eventually happen to people populating this next chart (courtesy of Ian McAvity):
Industrial production, which measures the output of U.S. manufacturers, mines and electric and gas utilities, increased a seasonally adjusted 0.7% in March from the prior month, the Federal Reserve said Wednesday. Capacity utilization, a gauge of slack across industries, rose 0.4 percentage point to a 79.2% rate.
Tight Job Market in U.S. Cities Prompts Higher Pay
The 7.4% growth over the year-earlier period was below the 7.7% level 
To save you time, I calculated that to make it the longest, this bull would have to keep running until April Fool’s day next year. Here’s something to really look forward to!
What goes up must come down