What will the inevitable interest rate hike do to US economy? We’re looking at the numbers to find out.

What will the inevitable interest rate hike do to US economy? We’re looking at the numbers to find out.

The word to sum up this week’s domestic economic indicators is “patience.”  This is the word that the Fed has adopted as a mantra.  The FOMC minutes were released this week and it seems to show that the Fed is unsure what to do next.  The economy is making a turnaround in their opinion, so traditional monetary policy would say it is time to start raising interest rates.  However, the Fed is afraid that if they take away the easy money the economy will go into a tail spin.  This along with an anemic inflation rate nowhere near where Janet Yellen wants is contributing to the Fed just sitting on the sidelines.  To some degree you can’t blame them since the rest of the world seems to be in an economic downturn and the U.S. for the most part is weathering the storm fairly well.  Other indicators this week showed that the labor market is still the brightest spot in our economy with initial jobless claims falling.  The producer price index which is used to gauge inflation was down for the third straight month hinting at a deflationary trend which is the last thing the Federal Reserve wants.  Two housing indicators were released and while the numbers weren’t spectacular it showed that the housing market is doing well.  The final indicator that is having more and more of an impact on our economy is the EIA petroleum status report.  U.S. inventories of crude keep rising to record highs as the global supply of oil continues to grow while demand has fallen off.  It seems the standoff between the U.S. and Saudi Arabia will continue as both refuse to cut supplies and the price of crude hovers around $50.


Domestic Economic Indicators 2/16 – 2/22

Monday 2/16 – Presidents’ Day Markets Closed

Tuesday 2/17

NAHB/Wells Fargo Housing Market index

  • Fell from 57 to 55 after a predicted rise to 58
  • U.S. homebuilder sentiment fell for a second straight month
  • An index based on a monthly survey of members belonging to the National Association of Home Builders (NAHB) that is designed to measure sentiment for the U.S. single-family housing market
  • Readings above 50 mean builders view the market conditions as favorable

Wednesday 2/18

Housing Starts

  • Fell 2% to an adjusted pace of 1.07 million units
  • This was a fall from a 6 ½ year high for new housing starts but still showed signs of a strengthening housing market
  • Compared to last year housing starts are up 18.7%

PPI – Producer Price Index

  • Was down 0.8%; this was the third straight month of decline
  • Biggest drop in more than 5 years
  • Was down as a result of the cost of energy and a range of other goods falling
  • hinting at a disinflationary trend that could argue against the Federal Reserve raising interest rates
  • A family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time. PPIs measure price change from the perspective of the seller

Industrial Production

  • Up 0.2% in January which was a little weaker than expected
  • The main cause of the slow growth was weakness in the automobile and mining sectors
  • Factory production is up 5.6% from last year
  • Mining output fell 1% as drilling activity slowed
  • Automobile assemblies fell 0.6%
  • A bright spot was industrial business equipment added 1.1 percent

FOMC Minutes (Federal Open Market Committee)

  • The minutes from the Fed’s Jan. 27-28 policy-setting meeting
  • Fed does not want to raise rates too soon and stunt economic recovery
  • Also worrying about falling inflation expectations in the U.S.
  • The central bank is targeting June as the month to begin raising rates
  • The minutes shed light on the depth of the Fed’s inflation debate and highlight the desire of policymakers to keep interest rates lower for longer
  • Minutes also showed Fed’s overseas concerns including China’s economic slowdown and tensions in the Middle East and Ukraine
  • Even though Fed officials agreed that U.S. economic growth was strengthening, the minutes showed the central bank continuing to struggle with whether it can move ahead with raising rates amid falling inflation expectations
  • The Fed repeated in January that it would be “patient” in deciding when to raise benchmark borrowing costs from zero, where they have been since late 2008, and acknowledged a decline in certain inflation measures
  • The minutes also said many participants were inclined toward “keeping the federal funds rate at its effective lower bound for a longer time.”
  • The Fed funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight and it affects monetary and financial conditions, which in turn have a bearing on key aspects of the broad economy including employment, growth and inflation

Thursday 2/19

Initial Jobless Claims

  • Fell 21,000 to a seasonally adjusted 283,00 which was more than expected
  • Another indicator of a strengthening labor market

EIA Petroleum Status Report

  • Crude oil inventories increased by 7.7 million to 425.6 million barrels which is the highest in over 80 years
  • Refineries operated at 88.7% of their capacity
  • Crude oil imports were down by 181,000 barrels a day to 7.1 million barrels per day
  • Gasoline production increased to average 9.2 million barrels per day

Friday 2/20

PMI Manufacturing Index Flash

  • Rose to 54.3 which was up from January’s reading of 53.9
  • Economists expected a decline to 53.6
  • Any reading over 50 signals expansion
  • “flash” reading is based on replies from about 85 percent of the U.S. manufacturers surveyed
  • The readings suggests the goods-producing sector is on course to make a robust contribution to the economy in the first quarter
  • The index is figure is achieved by tracking changes in variables such as output, new orders and prices across the manufacturing, construction, retail and service sectors

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