Key US Econ Data: Inflation Tame, Job Growth Strong
$DIA, $SPY, $QQQ, $VXX
Even with strong job gains and optimistic small business owners, inflation still at reasonable marks
- February Consumer Prices, Real Earnings and Small Business Optimism
- CPI: +0.2%; Over-Year: +2.2%; Less Food and Energy: +0.2%; Over-Year: +1.8%/ Hourly Earnings (Monthly): 0%; Over-Year: +0.4%/ NFIB: +0.7 pt
The US labor market is booming, consumer prices rose moderately in February, led by rise in apparel costs but that is still minimal
Housing expenses continue to rise and it cost more to eat out, insure your vehicle and buy medical products.
But food, fuel, vehicle and hospital services prices were either down or flat, so the price pressures were not widespread.
Excluding volatile food and energy components, consumer prices rose moderately.
Rising inflation continues to take its toll on household spending. Hourly earnings and prices both rose at about the same pace, so inflation-adjusted or real earnings were flat in February.
Workers made more on a weekly basis largely due to working longer hours.
Small business owners are happy.
The National Federation of Independent Business’ Index of Small Business Optimism rose in February and now stands at the 2nd highest mark its 45-yr history.
Taxes are no longer a major concern.
Finding qualified labor is the number one issue. Firms expect to invest and pay higher wages. Indeed, the capital spending index was the highest since Y 2004.
In a warning to the Fed, firms are raising prices and a growing number are planning to increase prices going forward.
The Fed meets next week and will have to decide whether or not to continue its interest rate normalization policy.
The members will be looking at a variety of factors, but the Keys Q’s are: Is growth strong and is inflation moving back toward its target?
The Big A: Yes.
The February jobs report indicates that the economy is in very good shape. Tuesday’s consumer price data tell us that inflation is nearing the 2% target rate, but is not accelerating sharply.
The NFIB survey is the report that should focus the FOMC members’ attention.
Actual and planned price increases are back into historically normal levels after being depressed for the past decade.
Firms seem to feel this is a good time to expand and they expect to get higher prices as they do so.
There is little reason for the FOMC to hold back on increasing interest rates at the 20-21 March meeting and many expect a rate hike at that meeting.
As for investors, the rise in the Consumer Price Index (CPI) was not so great that inflation fears were stirred up.
Plus, bond rates have stabilized, though at significantly higher levels than we had at the end of last year. So, seeing stock investors continuing to buy.
Tuesday, the major US stock market indexes finished at: DJIA -171.58 at 25007.03, NAS Comp -77.31 at 7511.00, S&P 500 -17.71 at 2765.31
Volume: Trade on the NYSE came in at: 781-M/shares exchanged
- NAS Comp +8.8% YTD
- S&P 500 +3.4% YTD
- DJIA +1.2% YTD
- Russell 2000 +3.7% YTD