This morning’s US economic updates on housing construction and industrial output—the final batch of numbers ahead of this afternoon’s monetary announcement from the Federal Reserve—delivered a mixed bag of macro news, albeit with a moderately positive spin. The main takeaway: industrial production is still contracting at the headline level but manufacturing is expanding at a faster rate. On the housing front, new residential construction continues to trend higher. Overall, the numbers offer support for expecting moderate economic growth in the near-term future.
Let’s take a look at the details, starting with today’s report on industrial activity for February. The headline index remains in negative territory, according to the Federal Reserve. Output contracted 0.5% last month, the fourth monthly decline in the last five months. Yet the manufacturing slice of industrial activity increased for the second month in a row, hinting at the possibility that worst has passed for this sector.
Looking past the short-term noise reveals a tale of two trends. In year-over-year terms industrial output declined 1.0% through February—the fourth straight run of red ink for the annual comparison. But manufacturing’s growth rate is accelerating, rising 1.8% in February vs. the year-earlier level—the strongest year-over-year gain since last summer.
“It does seem that after a recent spell of weakness, manufacturing seems to have found a base,” 4cast Inc.’s senior economist, David Sloan, tells Bloomberg. “This strengthens the tentative perception that manufacturing is making a firmer step in the first quarter, which is encouraging.”
Moving on to housing starts, new residential construction increased to 1.178 million units (seasonally adjusted), which marks a five-month high. Even more striking is the sharply higher year-over-year gain for starts, which surged to a nearly 31% increase last month vs. the level from a year ago.
