Inflation Stirs, Factory Output Climbs: U.S. Economic Takeaways

3 Charts Showing Inflation Moving Closer to Fed's Target
  • Core CPI increases 0.3 percent for second straight month
  • Manufacturing production climbs on business equipment demand

What you need to know about Wednesday’s U.S. economic data:

CONSUMER-PRICE INDEX (FEBRUARY)

  • CPI minus food and energy rose 0.3 percent (forecast was 0.2 percent) for a second month, the first such back-to-back moves since early 2001
  • Overall CPI fell 0.2 percent after no change
  • Core CPI climbed 2.3 percent from February 2015, the biggest year-over-year advance since May 2012
  • Increase in core broad-based: higher rents, hotel rates, clothing, medical care, motor vehicles and education

The Takeaway: The core measure, which strips out volatile food and fuel costs, signals a much-awaited pickup in inflationary pressures is taking shape across the economy. Federal Reserve officials have called plunging fuel costs and the stronger dollar transitory drags that’ll dissipate over time. As that happens, inflation will close in on the Fed’s 2 percent (YoY) goal. Policy makers, who wrap up a two-day meeting on Wednesday, are trying to decide when to raise the benchmark interest rate again after lifting it in December for the first time since 2006. “There’s absolutely no denying that there are inflationary pressures,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC. “The Fed can no longer be dismissive on inflation.”

INDUSTRIAL PRODUCTION (FEBRUARY)

  • Fell 0.5 percent after 0.8 percent gain
  • Factory production rose 0.2 percent (forecast was 0.1 percent) after 0.5 percent gain, first two-month gain since March-April of last year
  • Utility output dropped 4 percent, the most since March 2007, on warmer weather
  • Mining fell 1.4 percent, the sixth straight decline and a reflection of a 15.6 percent slump in oil and gas well drilling

The Takeaway: Manufacturing finally seems to be finding its footing. Assembly lines cranked out more business equipment, such as machinery and computers, as well as consumer durable goods. While sluggish overseas demand and investment cutbacks in the oil industry indicate trying times for American producers, this report adds to a series of recent data points that show the biggest declines may be over.

HOUSING STARTS (FEBRUARY)

  • Rose 5.2 percent to a 1.18 million rate (forecast was 1.15 million)
  • Starts of one-family homes climbed to a 822,000 pace, the strongest since November 2007
  • Permits for future construction dropped 3.1 percent to a 1.17 million rate
  • Beginning construction increased in three of four U.S. regions

The Takeaway: Housing starts rose for the first time in three months, a sign builders are shaking off the winter chill as the busy spring selling season approaches. New-home construction should help deliver a boost to economic growth. Starts rose in every region except the Northeast, where construction plunged 51 percent and may have reflected precipitation totals that were much above average. The only cloud in the report was an unexpected drop in construction permits, which may signal a more tempered pace of homebuilding in the next few months.

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