Contained Consumer Prices Supportive of Easy Monetary Policy
The Consumer Price Index (CPI) held steady in February, after four consecutive monthly gains of 0.2%. The 0.5% decline of the energy price index just offset gains in food prices and core items. Declines in prices of gasoline, electricity and heating oil more than offset the hike in natural gas prices. On a year-to-year basis, the CPI has risen 2.1% in February, after posting larger gains in each of the three prior months. In February, the food price index moved up only 0.1%.
Excluding food and energy, the core CPI edged up 0.1% in February vs. a 0.1% drop in January. The mild increase of the core CPI in February puts the year-to-year increase at 1.3%, the lowest since February 2004. In February, the index for medical care rose 0.5%, which retains the upward trend of medical care prices. By contrast, the shelter price index (32.9% of CPI and the largest component of core CPI), held steady in February after a 0.5% drop in January. The significant downward trend of the shelter price index is responsible for the contained core CPI. Lower prices for apparel, airline tickets, recreation, and household furnishings were other highlights of the CPI report. The 0.1% increase in new car prices is suspect because higher prices are unlikely to stick in the challenging auto sales environment.
At the cost of reiterating, concern about inflation is not the top most priority of the Fed, job creation and economic growth are at the front and center. In addition, inflation expectations (see chart 3) are supportive of the current accommodative policy of the Fed.
Index of Leading Indicators - Projection of Economic Growth Remains in Intact
The Conference Board's Index of Leading Economic Indicators (LEI) increased 0.1% in February after a 0.3% increase in the prior month. On a year-to-year basis, the January-February average shot up 9.6%, which exceeds the high recorded in the 2001-2007 expansion (see chart 4). The main takeaway is that projections of economic growth remain in place. At the same time, the six-month annualized change shows a moderating trend (8.9% increase in February vs. 12.8% gain during six months ended September 2009).
In February, real money supply (forecast) and interest rate spread made the largest positive contributions in addition to smaller growth recorded for supplier deliveries and new orders for consumer durables. The remaining six components were decliners - consumer expectations, initial jobless claims, factory workweek, building permits, orders of non-defense capital goods, and stock prices.
Total Continuing Claims Persist at High Level
Initial jobless claims declined 5,000 to 457,000 during the week ended March 13. Continuing claims, which lag initial jobless claims by one week, move up 12,000 to 4.579 million and the insured unemployment rate held steady at 3.5%. As we have noted in earlier commentaries, total continuing claims inclusive of unemployment insurance claims under special programs are a better measure to get a sense of softness in the labor market. Total continuing claims were reported as 10.6110 million for the week ended February 27, marking the twelfth consecutive weekly reading in excess of 10 million. This persistence of total continuing claims at an elevated level is of significant concern for policy makers.
Excluding food and energy, the core CPI edged up 0.1% in February vs. a 0.1% drop in January. The mild increase of the core CPI in February puts the year-to-year increase at 1.3%, the lowest since February 2004. In February, the index for medical care rose 0.5%, which retains the upward trend of medical care prices. By contrast, the shelter price index (32.9% of CPI and the largest component of core CPI), held steady in February after a 0.5% drop in January. The significant downward trend of the shelter price index is responsible for the contained core CPI. Lower prices for apparel, airline tickets, recreation, and household furnishings were other highlights of the CPI report. The 0.1% increase in new car prices is suspect because higher prices are unlikely to stick in the challenging auto sales environment.
At the cost of reiterating, concern about inflation is not the top most priority of the Fed, job creation and economic growth are at the front and center. In addition, inflation expectations (see chart 3) are supportive of the current accommodative policy of the Fed.
Index of Leading Indicators - Projection of Economic Growth Remains in Intact
The Conference Board's Index of Leading Economic Indicators (LEI) increased 0.1% in February after a 0.3% increase in the prior month. On a year-to-year basis, the January-February average shot up 9.6%, which exceeds the high recorded in the 2001-2007 expansion (see chart 4). The main takeaway is that projections of economic growth remain in place. At the same time, the six-month annualized change shows a moderating trend (8.9% increase in February vs. 12.8% gain during six months ended September 2009).
In February, real money supply (forecast) and interest rate spread made the largest positive contributions in addition to smaller growth recorded for supplier deliveries and new orders for consumer durables. The remaining six components were decliners - consumer expectations, initial jobless claims, factory workweek, building permits, orders of non-defense capital goods, and stock prices.
Total Continuing Claims Persist at High Level
Initial jobless claims declined 5,000 to 457,000 during the week ended March 13. Continuing claims, which lag initial jobless claims by one week, move up 12,000 to 4.579 million and the insured unemployment rate held steady at 3.5%. As we have noted in earlier commentaries, total continuing claims inclusive of unemployment insurance claims under special programs are a better measure to get a sense of softness in the labor market. Total continuing claims were reported as 10.6110 million for the week ended February 27, marking the twelfth consecutive weekly reading in excess of 10 million. This persistence of total continuing claims at an elevated level is of significant concern for policy makers.
