– March 17, 2017
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Capping off a mostly good week for the economy, economic reports released today show accelerating growth in manufacturing and continuing consumer optimism about the future.

Industrial production in the U.S. was unchanged in February following a 0.1 percent decline in January. That headline masks the significant improving trend in manufacturing and mining over the past few months. Manufacturing output – which accounts for about 81 percent of total industrial production – rose 0.5 percent in February, its sixth straight monthly increase. Output is up 1.4 percent from a year ago and has risen at a robust 3.7 percent annualized rate over the past three months. Consumer durables, food and tobacco, business equipment excluding transportation equipment, and construction supplies have led the way. Energy products, clothing, and paper have been the weakest areas within manufacturing.

Outside of manufacturing, mining activity – which accounts for about 9 percent of industrial production – rose 2.7 percent in February after a 2.2 percent increase in January. This category is up at an 8.9 percent annualized rate over the past three months.

The biggest drag on overall industrial production has been the sharp declines in utility output, falling 5.7 percent in February and 5.8 percent in January. Utilities account for about 10 percent of industrial production and volatility in output is typically weather related.

The University of Michigan Survey of Consumers Index of Consumer Sentiment came in at 97.6 in March compared to 96.3 in February, a gain of 1.3 percent.  From a year ago, the overall index is up 7.3 percent. Among the components, the Current Economic Conditions index posted a rise of 2.7 percent to 114.5 from 111.5 in February. Over the past year, the index is up 8.4 percent. Finally, the Index of Consumer Expectations – one of the AIER Leaders – rose to 86.7 in March from 86.5 in February, a rise of 0.2 percent for the month and 6.4 percent above the year ago level.

Economic data this week were generally positive but it’s impossible to know for certain whether the economy is moving to a stronger growth trend or simply experiencing normal ebbs and flows in economic activity. Certainly, the broader trend in many areas of the economy remain positive, and on a relative basis compared to many other economies around the world, the U.S. economy looks downright robust.

The AIER Leaders Index remains at 75 in the latest month, suggesting continued economic expansion and a relatively low risk or recession. Strong consumer fundamentals provide a solid basis for future economic growth, and some early signs suggest business investment and residential housing may begin to contribute more to economic growth.

The Fed raised the federal funds rate target as expected, the third increase since December 2015.  The increase was widely expected and the Fed indicated that future increases would likely proceed at a very gradual pace by historical standards. Risks to the outlook remain, as they always do, but for the moment, the most likely course is for continued moderate economic growth with the potential for some acceleration, price increases around the 2 percent level, and slowly rising interest rates.

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Robert Hughes

listpg_hughes Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.
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