- Q1 GDP Growth Jumps 1.1% on Strong Personal Consumption
- A Strong March Leads to a Surge in Chinese GDP in Q1 2023
- Durable Goods Retail Sales Suffer from High Interest Rates and Wary Consumers
- Choppy GDP Means UK Should Avoid Q1 Recession
- Japanese Consumer Confidence Jumps to Highest Level in Over a Year
- The End of Summer Sees the End of Disinflation in Europe
- Labor Market Indicators are Starting to Unify on Easing in Hiring
- Inflation and Tight Financial Conditions Weigh on the German Consumer
- Euro Area Money Supply Contracts for the First Time Since 2010
- Dismal Economic Data Out of Germany
- Core Durable Goods New Orders See Gentle Uptrend in July
- More UK Data Pointing to Q3 Decline
- Whispers of a UK Contraction in Q3
- Japan's Core Inflation Resumes Uptrend in July
- Early July Economic Data Leads to a Sharp Increase in Q3 Growth Expectations
- UK CPI: Energy Inflation Crashes but Services Inflation is Still Sticky
- China's Weak Start to Q3 Means More PBoC Easing
- Bank of Japan is Too Optimistic on Inflation
- The Bank of England Pauses in a Near Split Decision
- UK Inflation August Update: A Precursor to the Bank of England's Announcement
- Housing Starts Tumble in August Amid Rising Mortgage Rates
- US Retail Sales Grow at Fastest Monthly Rate Since the Start of the Year
- US Consumer Prices Surge in August Driven by Energy Costs
- August NFIB Survey Showed a Tough Environment for Small Businesses
- All Signs Point to a Weaker Labor Market in August
- Thoughts on GME and This Week in the Stock Market
- Record Home Price Levels Point to Strength in Post-Pandemic Economy
- The Stock Market Looks Overvalued, but It's Probably Not
- China GDP Growth Surpasses Expectations
- President-elect Joe Biden Introduces His "American Rescue Plan"
- Political Polarization Intensifies with Another Impeachment Along Party Lines
- Metal Demand Has a Bright Future in 2021 and Beyond
- What Happened to That US-China Trade Dispute?
- Civil Unrest, A Rising Threat to the 2021 Economy
- What's in the $900 Billion Relief Plan?
The US Economy is All Right
April 17, 2022
As we all know, the war in Ukraine has surfaced as the primary threat to global growth in 2022. The already inflammatory issues of inflation and supply chain disruptions are expected to worsen for most of the world if not all of it. With the beginning of the conflict taking place at the end of February, all eyes are on March and April economic data to see the initial impact. A first glimpse suggests the impact may be minimal in the US.
Industrial Production Maintains Strong Monthly Pace in March
Industrial production data for March came out on Friday with a strong monthly print of 0.9% MoM. This was the third straight monthly gain of 0.9-1.0% and the second straight for the manufacturing sector. Total capacity utilization also surfaced above 78% for the first time since January 2019 and exceeded the pre-pandemic reading by 2.0 ppts. US industry seemed to be operating normally in March without any disruptions added from the war. Instead, the expansion of industrial capacity continues at a rapid pace to keep up with excess demand.
The rise in energy prices has been the aftershock of the Russian invasion and sanctions that has shaken the US economy, and the industrial production report does reflect that. Oil and gas drilling production saw a strong 4.8% MoM increase in March following three monthly gains of 4.0% or more. This strength helped boost the mining subindex which grew 1.7% MoM. The good news is oil and gas drilling production is up 53.7% YoY after Q1 2022 which bodes well for the cooling of US gas prices. The strong response from oil and gas firms to higher prices dashes fears that they would be unwilling to ramp up production in the face of fundamental changes within the industry.
Empire State Manufacturing Survey Activity Surges in April
The first of many Fed manufacturing PMIs for April also came out last week describing firms' activity in the New York State, the Empire State Manufacturing Survey. These responses were received in the first week of April, about a month and a week from the beginning of the war in Ukraine. The General Business Conditions index saw a huge bounce from -11.8 to 24.6 boosted by a 36.3 pts jump in the New Orders index and a 41.9 pts jump in the Shipments index. This meant firms in New York reverted from a slight contraction in demand and production in March to a strong pace of growth in April. If the negative March numbers were representative of the effects of the war in Ukraine, they were very temporary.
If manufacturing firms did see an expansion in production and stronger demand, they saw it at with higher input inflation. The Prices Paid index accelerated to its higher reading of all time in April at 86.4. This was a jump of 12.6 pts from an already elevated reading of 73.8 in March. This was likely due to the surge in energy prices reported throughout March, a consequence of the Ukraine-Russia conflict that will continue to be cited. The situation has also lead to a worsening in optimism for the next 6 months. The forward-looking General Business Conditions index fell -21.4 pts but remained in positive territory at 15.2.
It seems that so far the US economy is doing all right. Of course, there is a lot of data to come through to help better describe the consequences of the war across the globe, but the above two reports suggest positive surprises on the way. This trend would be pleasant news for the FOMC board who is planning a path of policy normalization for the rest of the year. Avoiding potential snags in the next few months could mean the difference between slow growth and a full on recession as the Fed funds rate rises.