There were a few 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 firmed last month, with total production rising by 0.7 percent. This was a much better gain than economists had expected and the second monthly increase in a row following the weakness in May. However, much of the strength was again due to a spike in utilities (+2.1 percent), which could be attributed to more people turning on their air conditioning as temperatures rose in July above the norm. Further, industrial production on a year-over-year basis fell 0.5 percent last month, an improvement from June but still the 11th month in a row of annual declines. Elsewhere in the report, manufacturing, which makes up roughly 75 percent of all industrial production, rose by 0.5 percent last month, and capacity utilization, sometimes used as a leading indicator of inflation and potential output, lifted to 75.9 percent, much closer to the long-term (1972–2015) average. Historically, though, the Federal Reserve generally does not like to raise rates when capacity utilization is under 80 percent and declining.
Next, a report from the U.S. Census Bureau showed that privately-owned housing starts in July grew at a seasonally adjusted annual rate (SAAR) of 1.211 million units, a solid 2.1 percent increase from June’s downward-revised print. Single-family housing starts, though, rose by only 0.5 percent last month, while multi-family units (rentals) jumped by 8.3 percent. Regionally, total housing starts fell in the West but lifted everywhere else in July. Total building permits, a popular gauge of future construction activity, were a bit softer in July (-0.1 percent to 1.152 million units) but remain 0.9 percent higher compared to this same period last year. However, there is clearly a longer-term loss of momentum, likely due to a combination of land supply scarcity, still relatively tight credit standards, and local delays in getting building permits approved. However, continued strength in the labor market (wage growth), accelerating Millennial household formation, and Federal Reserve officials’ renewed reluctance to raise interest rates should all remain supportive of U.S. home construction.
Elsewhere, data from the Bureau of Labor Statistics (BLS) showed that consumer inflation pressures in America moderated in July, supporting last week’s reading on wholesale inflation. Specifically, the consumer price index (CPI) for all urban consumers was unchanged last month, and “core” CPI, which excludes the more volatile food and energy components, rose by just 0.1 percent. Both readings reflect a marked slowdown from the June that on the surface will likely not make it easy for Fed officials to justify an interest rate hike at next month’s policy meeting. However, a majority of CPI components are still seeing accelerating price gains, especially medical care services, a category that has lifted at an annual rate of more than 3.0 percent for the last three months in a row. Moreover, the pace of growth in health insurance costs continues to rise rapidly.
Sources: Econoday, Twitter, Bloomberg, ZH, FRBG, U.S. DoL, FRBSLPost author: Charles Couch