The latest numbers about the health of the U.S. economy showed continued growth when it comes to industrial production, housing starts, and retail sales, indicating increasing energy for the first part of the second quarter.
Industrial Production Signals 'Strong Momentum'
Industrial production rose 0.5% in March from the month before after increasing 1% in February, according to the Federal Reserve. This measure of the total output from the nation’s factories, mines and utilities advanced at a 4.5% annual rate for the first quarter as a whole.
After climbing 1.5% in February, manufacturing production edged up just 0.1% in March, the weakest performance since December. Mining output rose 1%, mostly as a result of gains in oil and gas extraction and in support activities for mining. The index for utilities jumped 3% after being suppressed in February by warmer-than-normal temperatures.
At 107.2% of its 2012 average, total industrial production was 4.3% higher in March than it was a year earlier.
Capacity utilization for the industrial sector moved up 0.3 of a percentage point in March to 78%, a rate that is 1.8 percentage points below its long-run 1972–2017 average.
James Knightly, ING’s chief international economist, tweeted following the report that it showed “the U.S. economy has strong momentum at start of the second quarter of 2018.”
Housing Starts up Nearly 2%
Gains in multifamily production pushed housing starts up 1.9% in March from February to a seasonally adjusted annual rate of 1.32 million units, according to the Commerce Department.
Multifamily production rose 14.4% to a seasonally adjusted annual rate of 452,000 units, its highest reading since December 2016. Single-family starts, however, fell 3.7% to 867,000 units.
“Builders are optimistic about future demand for housing and are ramping up production to meet this demand,” said National Association of Home Builders Chairman Randy Noel. “Single-family starts dropped slightly this month, but single-family permits year-to-date are up 5% from their level over this same period in 2017.”
Multifamily's strength pushed overall permit issuance up 2.5% in March to a seasonally adjusted annual rate of 1.35 million units. Multifamily permits jumped 19% to 514,000, while single-family permits fell 5.5% to 840,000.
“The modest decline in single-family starts in March is still in line with our solid builder confidence readings and is largely attributable to lingering winter weather that is causing production delays in certain areas of the country,” said NAHB Chief Economist Robert Dietz. “With ongoing job creation, wage increases and rising household formations, we can expect continued, gradual strengthening of the housing market in the coming months.”
Retail Sales Increase Most Since November
U.S. retail sales in March rebounded after declining for three straight months, according to the Commerce Department.
The 0.6% increase from February is the largest since November, as sales of new autos increased a solid 2%, the most in six months. Gains were relatively widespread across categories.
This was borne out in the so-called “control group sales” used in calculating the gross domestic product (GDP), which excludes volatile gasoline, autos, building materials, and food services. It was up a healthy 0.4% on the month, matching market expectations.
Compared to the same time in 2017, March retail sales increased 4.1%. Sales at non-store retailers jumped 9.7%, driven by healthy gains in online shopping, estimated to make up about 10% of all retail sales.
Analysts at TD Economics noted March was the first full month where taxpayers would have felt the impact of federal tax cuts on their paychecks. They said consumers responded by ramping up spending in a variety of areas, including for discretionary big-ticket items like cars and furniture, and also at online retailers.
“The good report for March comes too late to save consumer spending for the first quarter, where residual seasonality is expected to hold spending [growth] to not much better than 1% annualized,” said Leslie Preston, senior economist at TD Economics. “The good news is that a strong March result helps set the second quarter up for a healthy rebound, with consumer spending likely to growth around 3%. Our latest quarterly forecast calls for healthy consumer spending through the remainder of 2018, with growth in the neighborhood of 2.5%-3%, annualized.”
Other were less sanguine about the report, including Stifel Chief Economist Lindsey Piegza, who said the Trump tax cuts have had “a much more reduced impact than expected on workers’ pay” and that “the majority of Americans report they have not noticed a meaningful rise in their paychecks.”
She said, going forward, while job creation remains solid, in order to maintain even modest spending patterns, consumers must see sizable and sustained gains in income.
“At this point, wage gains remain modest at best,” Piegza said. “As a consumer-based economy, the fastest way to derail the economy is a pullback in consumer spending. With minimal spending in the first three months of the year, the first quarter [annualized] GDP is expected to rise 2.2%, according to Bloomberg.”
First-quarter GDP numbers are set to be released by the Commerce Department on April 27.