ECRI Weekly Leading Index 132.90+.99%
The holiday-shortened week began on Tues. with the Empire Manufacturing, Industrial Production and Capacity Utilization reports. The Empire Manufacturing report rose in February to a record 41.1 vs. expectations of 37.0. The report showed 52.5% of the company's surveyed said business improved from January, while 10.5% saw deterioration. The survey's hiring index for the next 6 months jumped to 36.2, the highest since the report began in 01. U.S. industrial production rose .8% in January, meeting expectations, while capacity utilization increased to 76.2 vs. expectations of 76.4. Record-low inventories relative to sales have prompted factories to speed up assembly lines to meet demand.
Housing starts retreated from their highest level in 20 years to a 1.9M-unit annual rate last month vs. expectations of 2M, on record cold temperatures in many parts of the country. The average temperature in the Northeast was almost 8 degrees colder than normal. As well, building permits declined to 1.9M vs. expectations of 1.91M.
The number of Americans filing initial unemployment claims fell last week to 344K, better than expectations of 355K and close to a 3-yr. low. The number of people continuing to collect jobless benefits rose to 3.19M vs. expectations of 3.11M. The index of leading U.S. economic indicators rose .5% in January meeting expectations. Jose Rasco, a senior economist at Merrill Lynch, said the rise could be attributed to the rise in the avg. work week, consumer sentiment, soaring stocks and falling jobless claims. The Philly Fed Index fell to 31.4 this month vs. expectations of 35.0. However, this was the first time since 1984 that the index came in above 30 for 3 consecutive months and the survey's measure of the length of the work week was the highest since record-keeping began in 1968.
The Consumer Price Index climbed .5% in January vs. expectations of a .3% rise. Ex food and energy, the index climbed .2% vs. expectations of .1%. The energy component of the index increased 4.7%, the most since the Iraq war began, on cold weather and increased demand from the U.S. and China. However, the core CPI only gained 1.1% for all of 03, the smallest annual rise in inflation in 43 years.
Federal Reserve Governors were unusually vocal last week. Their statements all seemed to focus on a few main themes. On the positive side, they said a substantial increase in hiring is on the horizon, tax cuts and interest rates at 46-yr. lows are boosting GDP growth significantly, they can remain "patient" with respect to raising rates and that overseas outsourcing has been going on for a long time and that it is good for the U.S. in the long-run. On the negative side, they said that U.S. workers were under-educated, persistently high energy prices were becoming a major concern and that inflation may become a problem in the future.
BOTTOM LINE: The avg. work week is increasing, productivity is declining and GDP growth is accelerating which should result in an accelerated rate of hiring. Tax cuts of $37B more than last year at this time are about to hit U.S. consumers' pockets. Interest rates are at 46-yr. lows and show no sign of moving up significantly. A recent survey of Global Economic Confidence by the Intl. Chamber of Commerce is at a 10-yr. high and their Overall Global Economic Climate index is at its best level since 1984. These findings were based on the responses of 1,114 "economic experts" in 92 countries. Fed Fund Futures are predicting the Fed to stay on hold until October. Finally, foreign governments and investors added 23% to their net holdings of U.S. securities in 03 even with a declining U.S. dollar, interest rates at historic lows and rising deficits. These are all reasons to be very positive for the direction of the U.S. economy in 04.
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