There were several important reports on the U.S. economic released this morning. First data from the Federal Reserve Bank of Philadelphia showed that manufacturing activity in the Mid-Atlantic region of the country accelerated in December, as the general business conditions index surged from +7.6 to +21.5. That was the first monthly improvement since September, significantly better than anticipated, and the highest reading in two years. Current measures of shipments, unfilled orders, total employment, and hours worked all improved this month but new orders declined slightly. The forward-looking indicators (six months ahead) were even more encouraging in December, including a sharp gain in capital expenditure plans. Broad inflation expectations, though, also rose substantially this month, and a majority of surveyed business managers expect the costs of worker compensation and health benefits to rise at a faster pace in 2017. Similarly, a report from the Federal Reserve Bank of New York showed that manufacturing activity in the Northeast region of the country rebounded significantly this month, with the general business conditions index jumping from +1.5 to +9.0. That was much better than economists had expected, the largest monthly gain since June, and the highest reading since April. Every single forward-looking indicator improved this month, which can likely be attributed to managers’ confidence about the potential business environment under the incoming administration. Chris Williamson, chief economist at IHS Markit added that “Companies are gearing up for further growth in coming months: employment is rising at the fastest rate for 18 months and purchasing activity has likewise been ramped up in preparation for higher production. Confidence among producers has clearly improved, setting the scene for a good start to 2017.”
Next, a report from the National Association of Home Builders (NAHB) showed that surveyed builders this month were a lot more confident in the market for newly built, single-family homes. Specifically, the NAHB’s housing market index jumped to 70.0 in December, the highest reading since 2005 (before the housing bubble burst), and the largest monthly gain since June 2013. Under the hood, the gauges of current sales conditions and prospective buyer traffic both improved markedly, and surveyed builders were also more optimistic about sales six months from now. Regionally, sentiment strengthened over the past three months across the country in December, with the largest gain being seen in the Northeast. Although the new uptrend in mortgage rates could be a headwind down the road, NAHB Chairman Ed Brady added that “This notable rise in builder sentiment is largely attributable to a post-election bounce, as builders are hopeful that President-elect Trump will follow through on his pledge to cut burdensome regulations that are harming small businesses and housing affordability. This is particularly important, given that a recent NAHB study shows that regulatory costs for home building have increased 29 percent in the past five years.”
Elsewhere, data from the Bureau of Labor Statistics (BLS) showed that household inflationary pressures firmed slightly last month, with the consumer price index (CPI) for all urban consumers rising by 0.2 percent. Although that was the smallest increase since July, it was also the 8th monthly gain in the past nine months and enough to raise the annual pace of growth to 1.7 percent, the highest reading since the summer of 2014. Rising gasoline and housing costs helped drive the gain in headline CPI last month, and a sustained increase in these areas going forward will make it easier for officials at the Federal Reserve to fulfill their forecast for three rate hikes in 2017.
Sources: Econoday, Bloomberg, Wells Fargo, Twitter, ZH, U.S. DoL, FRBP, FRBNY, IHS Markit, NAHB, FRBSLPost author: Charles Couch