US industrial production disappointed in February. Production stayed flat from the previous month while consensus was looking for an increase by 0.4% M/M. There was however a significant upward revision in the previous month’s data, from 0.0% M/M to 0.4% M/M. With the revisions taken into account, the outcome is therefore close to expectations. Looking at the February details, weakness was mainly based in mining (-1.2% M/M), while utilities stayed flat. Manufacturing production grew by 0.3% M/M as weakness in production of vehicles and parts (-1.1% M/M) and machinery (-0.3% M/M) was offset by the other manufacturing sectors. Capacity utilization dropped slightly, from an upwardly revised 78.8% to 78.7%. The February results are again disappointing and suggest that the manufacturing sector has started the year poorly, contrary to what was suggested by the business confidence indicators. Nevertheless, as the previous figures were regularly sharply revised upwardly, the same might happen for the February outcome.
In February, US consumer prices rose by 0.4% M/M, in line with expectations, while the annual rate stayed unchanged at 2.9% Y/Y. The details show that upward price pressures were mainly based in energy (3.2% M/M) and transportation (2.1% M/M), while core CPI
rose only by 0.1% M/M. The annual rate of core inflation dropped from 2.3% Y/Y to 2.2% Y/Y, in line with expectations. Within the core reading, upward price pressures were based in housing (0.1% M/M), food & beverages (0.1% M/M), medical care (0.2% M/M) and education & communication (0.2% M/M). This was however partly offset by lower prices for apparel (-0.9% M/M), tobacco (-0.4% M/M), fuels & utilities (-0.3% M/M) and recreation (-0.1% M/M). Core inflation is now off its peak reached in January and will probably slow further in the coming months. For the headline figure, the outlook is less clear as it will depend on the developments in the oil price. The sharp increase in the oil price last month prevented a further decline in the annual rate of inflation and suggests that inflation will be stickier than was forecast, probably squeezing households’ budgets.
In March, University of Michigan consumer confidence weakened slightly, for the first time in seven months. The headline index dropped from a one-year high of 75.3 to 74.3, while the consensus was looking for a further improvement to 76.0. The breakdown shows that weakness was based in the economic outlook sub-index, which dropped from 70.3 to 68.0. The economic conditions sub-index, on the contrary, improved from 83.0 to 84.2. Consumers are aware that the economic climate and labour market conditions are improving in the US, which boosted confidence over the previous months, but concerns about the ever higher oil price are probably starting to weigh on consumers’ sentiment. This is also suggested by consumers’ inflation expectations, as 1-year head inflation expectations rose sharply, from 3.3% to 4.0% in March, after staying flat in February. 5-year ahead inflation expectations picked up too, increasing from 2.9% to 3.0%. The slight correction in Michigan consumer confidence is not exceptional after the strong rebound over the previous months, and is probably mainly a result of the strong increase in the oil price in the course of February.