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Factory Output up in January; Housing Starts Stumble on Winter Weather

On Wednesday, the Federal Reserve reported that factory output surged 0.9% in January, following December’s 0.7% slump. January’s boost followed a long string of weak and mediocre months, so it’s uncertain if this will be a new trend.

Manufacturing output rose 0.5% but had fallen 0.2% in each of the previous two months. January’s strength was mainly due to a 2.8% increase in auto production. Outside of autos, several categories were up nicely, like primary metals (+2.1%), but several sectors fell too (e.g., electrical equipment and appliances; -1.3%). Much of manufacturing’s weakness over the past year has been from bloated inventory levels and a strong dollar.

Also on Wednesday, the Census Bureau reported that housing starts fell 3.8% in January, to a 1.09 million annualized rate. Heavy rains held back December starts, while winter storms affected January. Still, housing starts are expected to surpass 1.2 million units in 2016.

While January starts were stifled by weather conditions, building permits (which are a predictor of future starts) were essentially flat from December, but jumped 13.5% above the same time last year.

The Bureau of Labor Statistics announced that prices paid to producers of goods and services rose 0.1% in January after falling 0.2% in December. Service prices grew for the third straight month, while energy prices continued their decline, with a 5% decline. Food prices jumped 1%.

Consumer inflation, as measured by the Consumer Price Index (CPI), was flat in January as energy prices plunged 2.8%. However, the core CPI, which excludes volatile food and energy prices, jumped 0.3%, the largest monthly gain since 2011. And compared with a year earlier, the core CPI was up 2.2%, the largest year-over-year gain since June 2012. While inflation isn’t a problem, the core rate of inflation is far from being in a deflationary cycle.

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