There were two important reports on the U.S. economy released this morning. First, data from the Federal Reserve Board of Governors showed that industrial activity in America remained muted in February, as total production was unchanged from the prior month. That was worse than the 0.2 percent gain economists had anticipated but still an improvement from January. Much of the weakness was due to a 5.7 percent decrease in utilities related to warmer temperatures across the U.S. (reduced heating demand). More importantly, overall U.S. industrial activity on a year-over-year basis rose by 0.31 percent in February. Although weak, it was still the third y/y gain in a row following fifteen straight months of annual declines. Further, manufacturing, which makes up roughly 75 percent of all industrial production, lifted by 0.5 percent in February, the fifth gain in the past six months and better than expected. Capacity utilization, sometimes used as a leading indicator of inflation and potential output, slid to 75.4 percent last month, albeit from an upward-revised January print.
Elsewhere, the popular consumer sentiment index from the University of Michigan rose to 97.6 in the first half of March, slightly better than anticipated. Surveyed Americans’ outlooks on both current and future economic conditions improved this month. The former in March jumped to the highest reading since November 2000, helped by improved personal finances, i.e. households reported decade-high net gains in incomes and wealth. The improvement in forward-looking optimism was more modest this month because of the “extraordinary influence of partisanship,” according to Richard Curtin, director of the consumer survey. Specifically, the component for future economic prospects among Democrats signaled that a deep recession was imminent, while surveyed Republicans’ responses indicated a new era of robust economic growth was ahead. Mr. Curtin added that “Overall, the sentiment data has been characterized by rising optimism as well as by rising uncertainty due to the partisan divide. Optimism promotes discretionary spending, and uncertainty makes consumers more cautious spenders. This combination will result in uneven spending gains over time and across products.”
Sources: Econoday, Bloomberg, ZH, U.S. Census Bureau, U.S. DoL, FRBNY, FRBSLPost author: Charles Couch