Factory production in the United States declined – wait for it – “unexpectedly” in January by its greatest amount in almost five years and despite an apparent gain in consumer confidence, all signs point to a weak economic performance for the first quarter.
Even though these numbers are supposed to be seasonally adjusted, the Federal Reserve blames it on the weather. Overall, these economic indicators taken together suggest the first quarter of 2014 is going to be a very disappointing three months.
But wait, there's more. Here are three extra reasons the economy with stink this quarter.
The 0.8% decrease for manufacturers followed a revised 0.3% gain for December, which was weaker than initially reported. Industrial production dropped even as utility output climbed the most in nearly 12 months.
Numbers for November and December's exuberance were revised lower in both series.
Utilities jumped 4.1% in January, following a 1.4% dip the prior month. Mining slipped 0.9% after gaining 1.8%.
Looking at detail for manufacturing, durables fell 0.8 percent in January, led down by a 5.0 percent drop in motor vehicles and parts. Nondurables declined 0.8 percent in January.
A pickup in capital spending and hiring is needed to spur production gains or even more analysts will be downgrading their expectations for the first quarter of 2014.
Today's report adds to the argument that the first quarter will be sluggish. It also calls to attention as to whether the Fed will pause in its "measured steps" for tapering quantitative easing. But the Fed clearly will watch the next employment report before making that decision in mid-March.
According to Bloomberg, analysts are sour. "The forecasting firm Macroeconomic Advisers responded Thursday to the drop in retail sales by reducing its estimate of growth this quarter to a 1.7% annual rate from an earlier forecast of 1.9%. Moody's Analytics cut its forecast to a 1.9% annual rate from 2.2%.
2: Consumer sentiment
The Reuters/University of Michigan's consumer sentiment index improved the last two weeks of January, to a final January reading of 81.2 versus 80.4 at mid-month, but ended up a little bit short of December's final reading of 82.5.
The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices.
The low level of spending in December and January and the amount consumers dug into savings for the holidays suggests questions about how confident consumers really are.
They are not shopping in the malls because of the weather, analysts say, but online spending was down even more for the last two months, and as far as Housingwire can determine, online retailers weren’t frozen by weather.
In January, consumers spent less on clothing and furniture, and department store sales continued to decline after a weak Christmas season. Online shopping fell 0.6% last month.
Overall, the weak economic backdrop, poor housing recovery and potential for tail risk events over the next few months suggest that we have topped out in Consumer Confidence, a warning sign for equity markets.
Cross-border price pressures ticked higher in January but remain soft with import prices inching up 0.1% while export prices rose 0.2%.
But year-on-year rates remain well into the negative column, at minus 1.5% for import prices and minus 1.2% for export prices. The year-on-year rates for import and export prices have been in the negative column since July which is the longest negative run since 2009.
There is some upward movement in this report but from a very low level. Today's data do hint at some pressure for next week's producer and consumer price reports.