Economic Week in Review

ECRI Weekly Leading Index 134.40 -.15%

The Empire State Factory Index, a gauge of manufacturing in New York state, fell to 25.3 this month from a record high reading of 42.1 in February. This failed to meet expectations of 38.0. Anthony Chan, chief economist at Banc One said, "...we are likely to see the manufacturing sector continue to take 2 steps forward followed by a singe step back."

U.S. Industrial Production rose .7% in February versus expectations of a .4% rise. February's strong number followed a .8% rise in January, resulting in the largest 2-month gain since October-November 1999 during the final blow-off stage of the bubble. Strong demand, a lower dollar and the need to replenish inventories all suggest industrial production will remain strong.

U.S. employers plan to boost hiring during the second quarter, at the fastest pace in over 3 years, because demand for products and services is beyond the capacity of their current workforce, according to the latest Manpower Inc. survey.

U.S. housing starts fell to 1855K in February versus 1903K in January and expectations of 1930K. The 5th wettest February on record contributed to a 1.6% drop in the South, where about half of all new homes are built. Toll Brothers, the largest U.S. builder of high-end homes, said backlogs of houses ordered and awaiting construction totaled 5,094 homes at the end of January, larger than their entire delivery for last year.

The Federal Reserve policy makers reiterated they will be "patient" in holding down borrowing costs to help boost job growth, voting to leave the benchmark U.S. interest rate at a 45-year low of 1%. In their economic outlook, the Fed maintained their view that the risk of deflation equals that of inflation.

The Consumer Price Index rose .3% in February, meeting expectations, and lower than January's .5% rise. Core prices were 1.2% higher in the 12 months ended in February, the smallest rise since 1966. U.S. producer prices rose .6% in January versus expectations of a .4% rise and a .2% increase in December. This increase was mainly attributed to higher costs for gasoline and heating oil. Core prices were up .9% in the 12 months ended in January.

The Leading Indicators Index was unchanged in February versus expectations of a .1% rise and a .4% rise in January. The index is still 3.3% higher than the previous peak reached in May of 2002.

The Fed Bank of Philadelphia's general economic index registered a reading of 24.4 in March versus expectations of 29.0 and a reading of 31.4 in February. In a special question by the Philly Fed, 73.2% of the participants said they've had job openings in the last 3 months and 89.2% said problems filling those positions were due to a lack of "qualified applicants." Almost 77% said they anticipate job openings in the next 6 months.

BOTTOM LINE: Overall, the reports were mixed. Industrial production is still at very high levels. The fall in the Philly Fed and Empire State manufacturing reports was likely a result of exceptionally high readings the prior month, indicating just a pause. There are the initial signs of a pick-up in inflation, however the current readings are not high enough to be of concern. Based on the Fed's statements, I continue to believe that a rate hike will not occur until a couple of really strong monthly employment reports are released. Last week's reports also suggest that companies are having trouble meeting demand with their current labor force, implying a pick-up in hiring will occur very soon.