Sunday, March 22, 2015

February industrial production and new home construction

consistent with the weak reports of the previous two weeks, the two widely followed releases of February data this past week, Industrial Production and New Housing Construction, both came in well below economist's forecasts, with colder than normal February weather a factor in both...this week also saw the release of the Regional and State Employment and Unemployment Summary for January, breaking down the employment summary of six weeks ago by state, and the first two regional Fed manufacturing surveys for March, both of which indicated not much change from February; the Empire State Manufacturing Survey from the New York Fed, covering New York and northern New Jersey, reported its broadest business index at 6.9, while the Philadelphia Fed March Manufacturing Survey, covering eastern Pennsylvania, southern New Jersey, and Delaware also indicated ongoing slow growth as their broadest diffusion index of current manufacturing activity was virtually unchanged at 5.2..

Industrial Production Up 0.1% on Record Jump in Utility Output

the Fed's G17 release on Industrial production and Capacity Utilization for February showed that industrial production eked out a 0.1% increase in February due to the cold weather in the eastern US, after January's industrial production was revised from an increase of 0.2% to a decrease of 0.3%...the industrial production index, which is benchmarked to 2007 production being equal to 100.0, rose to 105.8 in February , while the industrial production index for January was revised from 106.2 to 105.7 and the December index was revised from 106.0 to 106.1...the manufacturing index, which accounts for roughly 70% of the industrial composite, accounted for most of the downward revision, as it fell 0.2% in February to 101.3 from a January reading which was revised from 102.1 to 101.5, while the manufacturing index for December was revised from 102.0 to 101.9, the index for November was revised from 102.0 to 101.9, the index for October was revised from 100.8 to 100.7, and the manufacturing index for September was revised from 100.7 to 100.6...after these revisions and this month's decrease, the February manufacturing index is now just 3.4% higher than the level of February 2014.... in addition, the mining index, which includes oil & gas production, fell 2.5% to 129.5 in February, after falling by 1.3% in January, as the index for oil and gas well drilling fell by 17.3% in February after falling 10% in January, even as the mining index remains 9.3% higher than a year ago...meanwhile, the seasonally adjusted index for utility output jumped 7.3% to 108.3, the largest one month increase in at least 50 years, as natural gas production rose by 10.0% and output of electric utilities rose 6.9%, as record cold temperatures in the population centers of the Midwest and Northeast increased demand for heating...

as we've mentioned previously, the bottom of the page of this G17 release from the Fed has links to 3 charts and 14 tables, which break the report down into detail...two of those tables, Table 1 and Table 4, give the details on industrial production by market group for the recent months, quarters and years, with table 1 giving the index change and table 4 showing the percentage change from the prior period...so in table 4 we can see that among final products and industrial products, which account for 51.62% of the overall industrial production index, production of consumer goods was up 1.0% in February, after falling 0.1% in January; then under that we can see that production of durable goods was down 1.4% in February, with automotive products, which account for more than half of durable goods, down 2.6%....and while we see that output of non-durable goods rose 1.7%, the reason for that was a 7.6% increase in consumer energy products, and that without those, non-energy nondurables fell by 0.2%, largely on a 2.3% drop in the output of clothing...

next, right at the top of table 4, we can see that the industrial production index for both January and February is lower than that of both November and December, and not much higher than October....that certainly indicates a poor start to the first quarter, whatever March will bring...scrolling down farther, we can see that the 2 recent months for most main categories of production except for energy and business supplies are generally lower than the last two months of the 4th quarter, with particular weakness in "materials", which are raw and intermediate materials that would input into other production processes...that suggests a weaker than expected contribution from inventories in 1st quarter GDP..

this report also covers capacity utilization, which is the percentage of our plant and equipment that was in use during the month, and which fell from 79.1% in January to 78.9% percent in February...capacity utilization for manufacturing industries fell to 77.3% after manufacturing utilization for January was revised down from 78.1% to 77.6% and manufacturing utilization for each of the 4 prior months was revised down 0.1% to 77.4%, 77.3%, 78.1%, and 77.9% respectively...capacity utilization for mining fell from 87.2% in January to 84.6% in February as drilling rigs were idled at a record pace even as mining capacity was up 8.9% over a year earlier on heavy equipment investment by the oil industry during the summer and fall...finally, utilities were operating at 84.5% of capacity during February, up from an operating rate of 78.7% in January, as utilities added 0.9% to their output over the past year..for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities...for broader coverage of this report, see Robert Oak's post February 2015 Industrial Production Shows Manufacturing's Downtrodden Decline, which includes nine FRED graphs of the most important data sets covered here..

Housing Construction Slows in February on Bad Weather

the February report on New Residential Construction (pdf) from the Census Bureau estimated that the widely watched count of new housing starts were at a seasonally adjusted annual rate of 897,000 in February, which was 17.0 percent (±9.5%) below the revised January estimate of 1,081,000 annually and 3.3 percent (±12.5%)* below the February 2014 rate of 928,000...the asterisk indicates that the Census does not have sufficient data to determine whether housing starts rose or fell since last year, but as you see, the 17% drop in month over month starts is clearly outside of the error margin, a decrease that can be attributed to the colder and snowier than normal for the month in the heavily populated eastern half of the US...the annual rates given here are extrapolated from a survey of a small percentage of permit offices visited by Census field agents which estimated that 62,400 housing units were started in February, down from 73,500 in January, of which 40,700 were single family houses and 21,100 were units in apartment buildings with 5 or more units...

as we mentioned, this drop in housing starts was weather related, and should not be seen as a change in the otherwise stagnant pattern of new home construction; this can first be discerned from the regional data, which shows a 56.5% (±18.1%) seasonally adjusted drop in starts in the Northeast and a 35.0% (±25.0%) seasonally adjusted drop in housing starts in the Midwest, while housing starts only fell by 2.5% (±13.8%) in the South...furthermore, the number of housing units completed also fell by 13.8 percent (±9.0%) from the revised January estimate of 986,000 annually to a seasonally adjusted annual rate of 850,000 completions in February, again outside of the margin of error...and again, completions fell by 29.3% (±24.0%) in the Northeast, and while they also fell by 7.4% (±28.6%) in the Midwest, by 14.0% (±14.2%) in the South, and 12.5% (±16.8%) in the West, the change for all of those regions include a margin of error greater than the estimated drop....and since the number of housing units completed was less than the count of those started, the seldom cited data on new homes under construction indicated a small 0.4% (±1.0%) increase, with the unadjusted data showing 815,000 homes under construction in February, up from 810,300 in January...that small increase in homes under construction also explains the ongoing increase in construction jobs, which was called into question by Zero Hedge with the release of this report...

a few other analysts cited housing permit data to show that intentions for new home construction had not changed significantly last month…in February, Census estimated new permits were issued at a seasonally adjusted annual rate of 1,092,000, which was 3.0 percent (±1.7%) above the revised January annual rate of 1,060,000 and was 7.7 percent (±2.0%) above the annual rate of 1,014,000 new permits estimated in February of last year... those estimates were extrapolated from the unadjusted estimate of 76,800 new permits issued in February, which was up from the estimated 70,000 new permits issued in January... issuance of new permits was down by 17.4% ( ±10.5%) in the Northeast, but up in every other region of the country, with the greatest increase of 7.3% ( ±2..2%) in new permits occurring in the South...the increase by 8.9% ( ±3.7%) in housing units authorized by a permit but not yet started in February is another indication that rather than a slowdown in planned construction, builder's intentions were simply waylaid by the weather..

(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links, most from the aforementioned GGO posts, contact me…)

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