There were a few important reports on the U.S. economy released this morning. First, data from the Bureau of Labor Statistics (BLS) showed that the consumer price index (CPI) for all urban consumers rose by 0.4 percent on a seasonally adjusted basis in April, more than economists expected. This is the largest month-over-month increase in headline CPI since February 2013 and it was helped by an 8.1 percent jump in gasoline prices last month. “Core” CPI, which excludes the volatile food and energy components, lifted by 0.2 percent in April, in line with forecasts and up 2.1 percent on a year-over-year basis. Shelter costs (rents) have been a big driver of consumer inflation over the past few years but price pressures are starting to build on a broader basis as well. For example, core CPI ex-shelter climbed at a solid annual rate of 1.38 percent last month, and rising costs for medical care, automobile insurance, and airline fares all contributed to April’s overall gain. Altogether, inflation pressures in America appear to be slowly firming and this will help justify Federal Reserve officials’ future decisions to continue interest rate normalization.
Next, a report from the Census Bureau showed that privately-owned housing starts in April grew at a seasonally adjusted annual rate (SAAR) of 1.172 million units. That is a 6.6 percent increase from March and better than economists had expected. Single-family housing starts rose by 3.3 percent last month and multi-family units (rentals) jumped by 10.7 percent. Regionally, housing starts declined in the Northeast and the West but lifted in the Midwest and the South. Building permits also rose in April (+3.6 percent) and were similarly driven by multi-family housing. This data release can be volatile and last month's solid gains only offset the sharp declines seen in March. Altogether, housing starts are down 1.7 percent over the past twelve months but demand for new homes in America should strengthen if labor market conditions and consumer balance sheets continue to improve.
Elsewhere, data from the Federal Reserve Board of Governors showed that U.S. industrial activity rebounded in April, with total production rising by 0.7 percent. This is more than three times the increase that economists had expected and the largest month-over-month gain since 2014. March’s figure, though, was revised lower and industrial production fell on an annual basis for the 8th month in a row. Elsewhere in the report, manufacturing, which makes up roughly 75 percent of all industrial production, lifted by 0.3 percent in April, and capacity utilization, sometimes used as a leading indicator of inflation and potential output, rose to 75.4 percent last month, still well below the long-term (1972–2015) average.
Sources: Econoday, Bloomberg, Twitter, ZH, U.S. DoL, NAR, FRBG, FRBSLPost author: Charles Couch