Busy Week for U.S. as Data Signals Economic Activity is Still Stabilizing in the World's Largest Economy

Several economic indicators were released during this past week from the world’s largest economy, where data from the manufacturing, housing, and industrial sectors signaled that the recovery is still mixed, as the economy is still stabilizing from the worst recession since WWII, while the FOMC decided to leave the benchmark interest rates unchanged as inflationary pressures are still well under control.

The U.S. manufacturing sector continues to show more signs that the worst slump for the manufacturing sector since the early 1980s has come to an end, where activity started to expand in the manufacturing sector back in August 2009 and from that point the manufacturing sector never looked back, as activity continued to expand ever since then.

The empire manufacturing index signaled activity slightly eased in March, nevertheless, the index continued to show that manufacturing activity is still expanding, while the Philadelphia Fed index signaled that manufacturing activity continued to rise in March. The manufacturing sector will probably need more time before it recovers fully, however the emerging signs are rather optimistic, since manufacturing activity is still expanding over a relatively good pace.

Meanwhile, the industrial production index also signaled that activity continued to expand in February, though over a slower pace than that reported back in January, while the capacity utilization index signaled that factories were using higher levels of resources in February, as economic activity continued to develop over the past few months.

The housing market however is still stabilizing from its worst slump in more than seven decades, where emerging signs recently suggested that the recovery in housing market activity is easing as elevated unemployment, tightened credit conditions, and rising foreclosures continue to suppress activity in the housing market.

The housing starts and building permits both signaled that activity indeed eased in February, though the figures were still better than median estimates, however, the figures confirmed the Feds’ recent assessment for economic activity, where the Feds signaled that housing market activity started to ease recently, even as the government continued its support for the housing market through the tax credit program for first time buyers.

The Federal Open Market Committee announced this week that it decided to leave the benchmark interest rates unchanged at the current target range between 0.0% and 0.25%, while also confirming that interest rates should remain at exceptionally low levels for an extend period of time, since the economy is improving moderately, while inflationary pressures remain well under control, where this was further confirmed later in the week by both the PPI and the CPI figures for the month of February.

The FOMC also confirmed that several liquidity programs will be terminated by the end of this month, since the Feds believe that the recent developments in financial market doesn’t warrant anymore extreme measures, where conditions in financial market seem to be stabilizing, and accordingly the Feds feel  the time now is right to normalize their monetary policy.

The Feds also signaled that conditions in the labor market seem to be stabilizing as well, though the labor market still needs time to recover, since employers are still reluctant to adding new jobs, however, the pace of layoffs has indeed eased over the past period, and that could prove to be essential for the ongoing recovery.

Moreover, the leading indicators index signaled that the U.S. economy will continue to expand over the upcoming period, however, we shouldn’t expect the U.S. economy to be able to sustain the same substantial growth levels reported during the third and fourth quarters of 2009, as even though the economy is improving amid the moderate improvement in consumer spending, yet spending is still confined by elevated unemployment, lower income growth, diminishing household wealth, and tightened credit conditions, nevertheless, the economy is still far from fulfilling its long term growth potentials.

The U.S. dollar on the other hand continued to fluctuate against the major currencies, yet overall the U.S. dollar still managed to protect its gains acquired throughout the past period, where uncertainty over the outlook for major economies around the globe, and fears that China will tighten its monetary policy alongside rising economic activity in the United States continue to provide the U.S. dollar with the needed momentum to take the lead amongst its major counterparts.

Meanwhile, stocks extended their rally during this past week to trade at their highest levels in almost 17 months, though stocks fluctuated on Thursday and Friday, however, this might prove to be just a slight correctional wave that will provide stocks with even more momentum to rise over the upcoming period…