The US economy is starting 2018 on strong footing. The Federal Reserve's Beige Book observed that the economy ended 2017 strongly. 1-Unit housing permits - a key leading indicator - rose. And industrial production - a coincident indicator that has languished for much of this expansion - increased at a solid clip.
On Wednesday, the Federal Reserve released the first Beige Book for 2018. It contained the following assessment of the macro-economy:
Reports from the 12 Federal Reserve Districts indicated that the economy continued to expand from late November through the end of the year, with 11 Districts reporting modest to moderate gains and Dallas recording a robust increase. The outlook for 2018 remains optimistic for a majority of contacts across the country. Most Districts reported that non-auto retail sales expanded since the last report and that auto sales were mixed. Some retailers highlighted that holiday sales were higher than expected. Residential real estate activity remained constrained across the country. Most Districts reported little growth in home sales due to limited housing inventory. Nonresidential activity continued to experience slight growth. Most manufacturers reported modest growth in overall business conditions. Reports indicated that some manufacturers increased capital expenditures over the reporting period. Most reporting Districts noted continued growth in transportation activity. Loan volumes in many Districts were steady. Among reporting Districts, agricultural conditions were mixed and energy contacts described a slight uptick in activity.
The following chart converts the five primary coincident indicators to a base 100 with 100 the end of the last recession. All five are moving higher, confirming the Fed's analysis:
Housing permits decreased .1%. But, as with all economic reports, the devil is in the details. 1-unit structures - which comprise 68% of all permits - were up 1.8% while 5+ units (multi-family structures) decreased 4.3%. The pace of 1-unit permits increases has been on a steady upward climb since 2Q17:
Approximately 26% of 1-unit permits are issued in the West, a region that has grown strongly since July 2017:
Industrial production - which has been the weakest performing coincident indicator during this expansion - increased a very healthy .8%. IP is now at its highest level in the post-recession period:
The Fed presents this data using two different classifications. Final products is a key subdivision of the "major market groups;" this was up .8%.
This, in turn, is divided into two subdivisions: consumer goods and business equipment. The former increased 1%. More importantly, it looks like this sector could be breaking out of its recession malaise:
Business equipment increased a more modest .2%.
Recently, this group has increased strongly on several occasions, yet hasn't been able to keep its momentum. Maybe this time will be different.
Next week's big news is the first estimate of 4Q GDP. Both the NY and Atlanta Fed are projecting strong levels of growth, which is confirmed by the ancillary economic data we're currently seeing.