This week we saw (finally) the price indices for February 2019 consumer prices, producer prices, and import prices. All showed low inflation and generally downward trends.
What's interesting is that historically recessions have not occurred when the rate of inflation slows (or is low).
Recessions historically have occurred when inflation is growing, and this is logical because a growing inflation rate is one sign that an economy is overheating.
As I have continued to state, there's no indication of a recession in the data I review - there's only evidence of a slowing trend for the economy. Of course, there can always be economic shocks such as an unforeseen significant increase in oil prices which could trip the economy into a recession.
Economic Releases This Past Week
The Econintersect Economic Index for March 2019 insignificantly declined and remains below territory associated with normal expansions. The question remains whether this downward trend will continue. Note, our index is built on data sets which were not affected by the government shutdown - and it's most likely that other recent economic forecasts you have seen fudged the missing data. A forecast with fudged data is simply a guesstimate.
The following table summarizes the more significant economic releases this past week. For more detailed analysis - please visit our landing page which provides links to our complete analyses.
|Release||Potential Economic Impact||Comment|
Leading Indicator Review
|confirms a slowing economy|| |
Leading Indicators Conclusion: most are forecasting no, modest or average growth. Most are forecasting 6 months into the future.
|January Retail Sales||continues to indicate a slowing economy|| |
Seasonally adjusted sales up 0.2 % month-over-month, up 2.3 % year-over-year (published up 2.3 % YoY last month also). The point here is that the increase this month was offset by the significant downward adjustment of last month's already poor data.
The real test of strength is the rolling averages which declined. The short term trend beginning in mid-2018 is downward.
This data is not inflation adjusted.
|December Business Sales and Inventories||growing inventory suggests a slowing economy|| |
Inventories grew this month. Our primary monitoring tool - the 3 month rolling averages for sales - declined again but remains in expansion. As the monthly data has significant variation, the 3 month averages are the way to view this series. Overall business sales are improving since the low point in 2015 - and the trend over the last 6 months shows growth is trending down - and this month it is below the ranges seen.
|February Consumer Price Index||could be an indication of a cooling economy|| |
According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 1.5 % year-over-year (lower than the 1.6 % last month). The year-over-year core inflation (excludes energy and food) rate moderated from 2.2 % to 2.1 %. The food index rose 0.4 percent, its largest monthly increase since May 2014.
As a generalization - inflation accelerates as the economy heats up, while the inflation rate falling could be an indicator that the economy is cooling.
|January Durable Goods||slowing trend continues|| |
In the adjusted data, the strengths were defense and civilian aircraft. This series has wide swings monthly so our primary metric is the unadjusted three month rolling average - which insignificantly declined but is growing faster than GDP. The rate of growth of the rolling averages is below the values seen over the last year.
|February Producer Price Index||could be an indication of a cooling economy|| |
The Producer Price Index year-over-year inflation moderated from 2.0 % to 1.9 %. The labor price decline was the major reason for the decline.
|January Construction Spending||slowing trend continues|| |
The headlines say construction improved month-over-month. The rolling averages declined - and last month was significantly revised down. This means the headline improvement was caused by reducing the previous month's construction. Also note that inflation is grabbing hold, and not only is the inflation adjusted numbers are in contraction, but also the year-over-year growth for this month.
|February Import and Export Prices||could be an indication of a cooling economy|| |
Year-over-year import prices and export prices grew insignificantly with import prices still contracting year-over-year. The month-over-month price index for fuel imports increased (and non-fuel imports was unchanged) - and the price index for agricultural exports increased.
Import Oil prices were up 4.9 % month-over-month, and export agricultural prices were up 0.3 %.
|January New Home Sales||slowing economy on spending|| |
The headlines say new home sales declined and continues in contraction. Median and average sales prices marginally declined - and the backlog of unsold homes declined.
This month the backward revisions were sometimes significantly upward. Because of weather and other factors, the rolling averages are the way to view this series. The rolling averages improved but remains in contraction.
|February Industrial Production||evidence of a slowing economy|| |
Although the headlines say seasonally adjusted Industrial Production (IP) improved month-over-month, the manufacturing component of industrial production significantly declined (only up 1.0 % year-over-year). Even looking at all three components of Industrial Production (manufacturing, mining, and utilities), the three month rolling average declined.
|January JOLTS||slight slowing in the rate of growth||Job openings marginally declined. The unadjusted data this month showed about average rate of growth that was seen in the last year. However, the decline is so small that it is difficult to believe there will be much effect on employment.|
NFIB Small Business Optimism improved modestly. This indicator remains below most values seen in the last two years.
Empire State Manufacturing - With both the main index and key indices declining, this was a worse report than last month.
The preliminary University of Michigan Consumer Sentiment for March came in at 98.7 - up from the final February preliminary of 93.8 - and up from the January final of 91.2. According to the authors of this index: "The early March gain in sentiment was entirely due to households with incomes in the bottom two-thirds of the distribution, whose sentiment rose to 97.4 from 90.0 in February. Sentiment fell among households with incomes in the top third to 98.5 in early March from 101.7 in February."
|Weekly Rail Counts||Definitely not positive news||Rail so far in 2019 has changed from a reflection of a strong economic engine to contraction. Currently, not only are the economic intuitive components of rail in contraction, but the year-to-date has slipped into contraction.|
This week the data is mostly showing a slowing economy - but still, there is little to indicate that a recession is waiting in the wings.
My usual weekly wrap is in my instablog.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.