Economic Activity Lacks Clear Signals

Petroleum prices are heating up and industrial production is showing strength these days, but lackluster activity in housing and mixed reports for retails sales are putting a damper on a full-blown economic recovery.

Although inflation is at a standstill, the sharp price increase for petroleum imports raises a large red flag, and puts the squeeze on producers here in the US who are unable to pass on price increases to consumers at this point.

Here are the specifics:

The MBA Purchase Activity report led the pack today with a lackluster figure of -4.0 percent for mortgage applications for home purchases for the week of February 12. A decline in refinancing activity pulled the overall four-week average to -1.2 percent.

Retails sales fell for the same week according to the ICSC-Goldman Store Sales report, declining 1.6 percent from the previous week and still 0.7 percent below last year’s number. In a separate report, Redbook reported increasing strength for retail sales in the Feb 13 week, with a year-on-year rate of plus 1.8 percent. Both reports suggested the weather figured prominently in the results.

Housing starts for January showed a gain of 2.8 percent in groundbreaking, but permits fell. Notably, the largest gain was in multi-family starts up 9.2 percent after a 12.6 percent jump in December, a sign that residential housing continues to show weakness.

Petroleum prices drove up import prices for January by 1.4 percent, reflecting an overall rise in raw materials. The year-on-year petroleum increase of 95.5 percent is the largest in 10 years. Producers are absorbing the squeeze by keeping consumer pricing level on finished goods.

Industrial production gave a strong showing for January, showing a slightly better than expected increase of 0.9 percent. Again, cold weather and an increase in utilities output accounted for some of the change, but manufacturing increased a healthy 1.0 percent and capacity utilization rose to 72.6 percent from 71.9 percent in December.

The short-term outlook is always a bit cloudy and weather can play a major role. But what the economy doesn’t need at this point is a trend of sharply increasing petroleum prices.

What do all these tea leaves mean to you? Let us know in the comments section below …