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Economic Watch: Manufacturing and Leading Index Up, Consumer Prices Tame

UPDATED -- U.S. manufacturing has hit is highest level in nearly four years, according to a report released Thursday

Evan Lockridge
Evan LockridgeFormer Business Contributing Editor
February 20, 2014
3 min to read


UPDATED -- U.S. manufacturing has hit is highest level in nearly four years, according to a report released Thursday

Figures from the financial information services provider Markit suggest a solid rebound in U.S. manufacturing business conditions following the slowdown recorded during the previous month. This was highlighted by a rise in the Markit Flash U.S. Manufacturing Purchasing Managers’ Index, which increased from 53.7 in January to 56.7 in February.

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“The flash manufacturing PMI provides the first indications that production has rebounded from the weather-related slowdown seen in January,” said Chris Williamson, chief economist at Markit. “Having slumped to a three-month low in January the PMI surged to its highest for almost four years in February, as companies reported business returning to normal after freezing temperatures and snow disrupted operations and supply chains.

The upturn was driven by sharp and accelerated increases in both production levels and incoming new work during February. New business volumes increased at the sharpest rate since May 2010, suggesting resilient underlying demand across the U.S. manufacturing sector. Higher levels of new work in February partly reflected a return to export sales growth following a slight reduction during the previous month.

Meantime, a measure of inflation shows it increased 0.1% in January following a 0.2% gain in December, the largest since July. When volatile food and energy prices are stripped out the increase was still 0.1% last month

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The Labor Department reports the Consumer Price Index is up 1.6% compared to the same time a year ago, below the Federal Reserve’s target of less than 2% annually.

Despite the slower pace, energy prices picked up steam in January, especially with electricity, posting its largest gain since March 2010.

The CPI has come under attack lately because some claim it does not accurately measure the increasing cost of living.

Government figures show prices are up a little more than 6% since 2011, according to a recent story from CBS News but the cost of some foods have posted significant double digit hikes during the same time. This, coupled with median income increasing only 1% annually, along with economists and policy makers traditionally looking only at the CPI to gauge inflation, shows a disconnect between statistics and the real world, according to one analyst that was interviewed.

Finally, a third report from private research group The Conference Board shows its Leading Economic Index for the U.S. increased 0.3% in January to 99.5 following no change in December, and a 0.9 percent gain in November. The index is used to forecast the economy three to six-months in the future.

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“The U.S. Leading Economic Index continues to fluctuate on a monthly basis, but the six-month average growth rate has been relatively stable in recent months, which suggests that the economy will remain resilient in the first half of 2014 and underlying economic conditions should continue to improve,” said Ataman Ozyildirim, economist at The Conference Board.

The increase also reflects an economy that is expanding moderately, although the pace is somewhat held back by persistent and severe inclement weather in most parts of the country, said Economist Ken Goldstein. “If the economy is going to move on to a faster track in 2014 compared to last year, consumer demand and especially investment will need to pick up significantly from their current trends.”

Update adds Leading Economic Index.

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