Economic Indicators Flash Yellow

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Special Guest Blogger: Tim Kearney

February saw disconcerting data from the manufacturing sector, which fell for the second consecutive month in the United States. Industrial production undershot, clocking in at 0.1% MoM (0.4% was expected), although January was revised upward to -0.4% from -0.6%. Manufacturing, which accounts for about three-fourths of industrial production, fell by 0.4% (0.1% was expected) although the big -0.9% MoM in January slimmed to -0.4%; the annual percent change dropped to 1%. Capacity utilization was basically flat at 78.2%. The nonfarm payroll (NFP) print of 20,000 jobs in March also pressured concerns over growth.

At this point, with many estimates at the lower end of their recent ranges, it seems a foregone conclusion that 1Q19 will be soft. The Atlanta Federal Reserve’s GDPNow forecast is currently a weak 0.4%, down from 2.8% earlier in the quarter. The New York Fed Nowcast is holding at 1.4%, down a point since early December 2018. There remain unresolved questions about the issue of 1Q19 seasonality, which may have been exacerbated by the severe winter weather. This is not to argue that we can explain away softer 1Q19 data, but simply that it may be difficult to separate signal from noise this quarter.

The fading inflation rate implies that the Federal Reserve is correct to be “patient”; I believe a useful notion for this pause is “data dependency.” I doubt that we are looking at a rise of inflation in the short run. It will be interesting to see how the Fed handles the next six months.

Please watch GDP on page 70 of the Global Perspectives book.

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