A slew of rather disappointing economic data was not enough to faze the major US equity indices, which all surged, although just barely enough to make up for Friday's pullback. The rally was also a surprise given the substantial pullback in oil prices, now below $44 per barrel, as well as the impending Federal Reserve Meeting this Wednesday. Every quarter, the Fed releases economic projections for criteria that will ultimately affect interest rates. However, many economists now have reason to believe that the Federal Reserve Open Market Committee (FOMC) will not raise interest rates by the June meeting, no matter how impatient the hawks are getting.
In addition to the pullback noted in the Empire State Manufacturing data, the overall manufacturing sector is continuing to struggle in 2015, as noted in the February report on manufacturing production and capacity. Industrial production in the month of February edged slightly higher by 0.1% month-over-month after falling by 0.3% in January, while market expectations were for a 0.3% gain. Manufacturing activity declined by 0.2% in February after falling 0.3% in the prior month for the third consecutive monthly decline. This was substantially worse than economist expectations for a 0.1% increase. The motor vehicles and parts industry posted a notable loss of 3.0% in February, the largest decrease among durable goods manufacturers; most of the other industries moved down more than 0.5%. Only the aerospace and miscellaneous transportation equipment industry recorded a sizable increase in production, advancing 1.2%. Mining activity also dropped again in February by 2.5% after a 1.3% decline in January, while utilities surged 7.3% after increasing by only 1.0% the month before. Ultimately, overall capacity utilization slipped to 78.9% from 79.1% in January. However, utilization is still much higher than that of prior years as the chart below indicates.
In the same sleeve as production activity, the housing market appears to be stalling from its earlier strength. There continues to be a lack of first-time home buyers in the market which is weighing on the National Association of Home Builders (NAHB) index for March, which slowed by 2 points to an 8-month low of 53. Particular weakness was found in the traffic component which was down 2 points to 37, which is a 9-month low and directly reflects the lack of first-time buyers. Why is there still a lack in interest in buying a home? Some economists are speculating that it's still tied to the bubble collapse in 2008, which may have lowered the appeal of buying a home as a lifelong investment. This data always precedes the housing starts data by one day, and tomorrow we don't expect the results to be better than "mixed".