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The latest numbers for January (and even December) were sluggish. But the early releases for February indicate that economic growth is improving. The recovery obviously has been uneven but still has legs. But higher crude oil prices are a growing concern.
 Equities ended the week mixed. They started off little changed despite upward lift from positive pending home sales and favorable manufacturing news from the Dallas Fed. Stocks were mostly up Tuesday with the Dow closing above 13,000 for the first time since 2008. It was dueling indicators as a boost in consumer confidence outweighed declines in Case-Shiller home prices and in durables orders. Also, providing support was a notable decline in oil prices.
Equities declined at midweek despite an upward revision to Q4 GDP, a better-than-expected Chicago PMI, and an improved Beige Book. The reason for the drop was that Fed Chairman Ben Bernanke gave the first part of his semi-annual monetary report to Congress and traders had worked up the belief that there would be hints of QE3. When there were no such suggestions, stocks declined.
Stocks advanced Thursday on dueling indicators where the positive view won out. On the downside, the personal income report was soft, ISM manufacturing was not as positive as projected, and construction spending was essentially flat. But on the positive side were very robust motor vehicle sales, gains in chain store sales, and an unexpected dip in initial jobless claims.
There was no economic news for the U.S. on Friday and trader attention turned to Europe. Traders resumed worrying about growth prospects for Europe (or lack of thereof) and most indexes dipped for the day. Separately, the big corporate story of the day was the IPO for Yelp, the latest darling of Internet stocks. Yelp provides public reviews (recommendations and warnings) of local businesses ranging from restaurants to dentists. The Dow ended the week back below 13,000 at 12,977.57.
Equities were mixed this past week. The Dow was down 0.1 percent; the S&P 500, up 0.3 percent; the Nasdaq, up 0.4 percent; and the Russell 2000, down 3.0 percent.
For the year-to-date, major indexes are up as follows: the Dow, up 6.2 percent; the S&P 500, up 8.9 percent; the Nasdaq, up 14.2 percent; and the Russell 2000, up 8.3 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Treasury rates ended the week mostly down but only moderately so. Volatility was modest during the week.
The week started with modest flight to safety after the G-20 turned down calls for financial support—led by Germany—to contain the European sovereign debt crisis. Flight outweighed positive economic news in the U.S.
After little change on Tuesday, rates mostly firmed at mid-week as Fed Chairman Bernanke gave no indication of additional Fed easing. Also, U.S. economic news was on the positive side with GDP, Chicago PMI, and Beige Book. Rates continued upward Thursday on more favorable than not economic news—especially a dip in initial jobless claims and strong auto sales.
Treasury yields ended the week on a down note on flight to safety (albeit modest) on concern about European economic health.
For this past week Treasury rates were mostly down as follows: 3-month T-bill, down 4 basis points; the 2-year note, down 3 basis points; the 5-year note, down 5 basis points; and the 7-year note, down 3 basis points. The 10-year note was unchanged while the 30-year bond edged up 1 basis point.
 The spot price of crude declined this past week but remained quite elevated.
The spot price of West Texas Intermediate eased about a dollar a barrel on Monday after the G-20 rejected a request to help with a bailout on European sovereign debt and as an IMF official warned that the global economy is still “not out of the danger zone.”
Oil traders took a different focus Tuesday than equity traders, sending the price of crude down two bucks on news of weakness in durables orders, paying less attention to consumer confidence. Manufacturing matters more in the oil markets.
At midweek, crude was little changed. But on Thursday, WTI jumped a buck and a half on an unconfirmed report of a pipeline explosion in Saudi Arabia and on the dip in jobless claims. At week’s close, remarks by President Barack Obama soothed oil markets. He stated that a pre-emptive strike on Iran might generate sympathy for that county, implying that a strike is not imminent.
Net for the week, the spot price for West Texas Intermediate dropped $2.67 per barrel to settle at $106.82. Current prices are well above those during latter 2011 and very early 2012 and likely are feeding into headline inflation—at least for the near term.
The first quarter is starting on a sluggish note but the most recent numbers suggest improvement at mid-quarter. But first, the fourth quarter was revised up.
 The fourth quarter was a little stronger than earlier believed as GDP growth broke the psychological 3 handle. The Commerce Department revised fourth quarter GDP growth up to 3.0 percent from the initial estimate of 2.8 percent. The latest figure compares to a modest 1.8 percent rise in the third quarter.
The upward revision to the percent change in real GDP primarily reflected an upward revision to nonresidential fixed investment, a downward revision to imports, and an upward revision to personal consumption expenditures (PCEs).
Demand numbers were nudged higher. Final sales of domestic product increased an annualized 1.1 percent, compared to the initial estimate of 0.8 percent for the fourth quarter. Final sales to domestic purchasers (excludes net exports) rose a revised 1.1 percent, compared to the advance estimate of 0.9 percent. Both series were significantly slower than in the third quarter.
Separate from the direction of revisions, the acceleration in real GDP in the fourth quarter primarily reflected an upturn in private inventory investment and accelerations in PCE and in residential fixed investment that were partly offset by a deceleration in nonresidential fixed investment, a downturn in federal government spending, an acceleration in imports, and a larger decrease in state and local government spending.
Economy-wide inflation according to the GDP price index was bumped up to 0.9 from the near flat initial estimate of 0.4 percent annualized. The latest is a notable deceleration from 2.6 percent in the third quarter.
The composition of GDP was somewhat improved from the initial estimate but inventory growth was the main driver of fourth quarter growth. Final demand needs to strengthen. However, the January personal income report indicates that is not happening yet. But even more recent motor vehicle sales show strong demand.
 At the start of the first quarter, income and consumer spending were soft. Personal income growth slowed but remained healthy in January while spending improved a little. Personal income in January increased 0.3 percent after a 0.5 percent boost the month before. However, the important wages & salaries component was a little stronger, advancing 0.4 percent, matching December’s growth rate.
 Consumer spending in January improved to a 0.2 percent gain from no change in December. The goods components were relatively strong as durables gained 0.9 percent after a 0.5 percent increase in December. However, nondurables were lifted by higher gasoline prices, increasing 0.4 percent, following a 0.8 percent drop in December. Services held back overall spending with no change in January after a 0.2 percent rise the month before. Weakness was likely related to soft utilities tied to mild winter weather. This actually is likely a positive as less money is spent on utilities, freeing discretionary income for other spending in coming weeks. While oil prices are high, natural gas prices are very low.
Inflation at the headline and core levels was moderately warm. The headline PCE price index heated up somewhat to 0.2 percent from 0.1 percent in December. The core rate firmed to 0.2 percent, also from 0.1 percent in December. Year-on-year, headline prices were up 2.4 percent, compared to 2.5 percent in December. The core was up 1.9 percent, matching the prior month’s pace.
Inflation is keeping real spending soft. Chain dollar PCEs were flat each month for November through January. The durables component has been posting gains while nondurables has been negative to flat and services has been flat in recent months. The PCEs component for first quarter GDP is looking anemic at this point. But more recent numbers on motor vehicle sales point toward improvement in PCE growth for the first quarter.
 Despite the soft January personal income report, there are signs of a strengthening consumer sector. First an overwhelming share of chain stores reported greater rates of year-on-year sales growth in February than in January. The results generally beat guidance.
And vehicle manufacturers reported very strong sales in February. Total unit sales jumped 6.5 percent in the month to an annual rate of 15.1 million. The gain was centered in cars, especially imports. Prices for cars are less than trucks which will limit the total for dollar sales. But this aside, gains in February data were strong and do include trucks.
It was little noticed but January sales squeaked higher than the cash-for-clunkers surge in August 2009 and February notably topped that month’s 14.2 million unit sales pace. The auto sector clearly is adding to economic growth.
Of course, for the first quarter we will have to wait and see how much the Commerce Department allocates motor vehicle sales between personal consumption and equipment investment (leased vehicles or company purchases). Nonetheless, the overall impact of February sales is to boost first quarter GDP from a soft January start and to add momentum to manufacturing.
 The jobs market is gradually and steadily improving and the consumer is noticing. According to the Conference Board’s measure, the consumer confidence index jumped 9.3 points in February to 70.8—the highest reading since a 72.0 level in February 2011 and notably above the recession low of 25.3 in February 2009.
The view of the jobs market is making the difference. Those describing jobs as hard to get dropped to 38.7 percent versus January's 43.3 percent. February was the first reading below 40 percent since November 2008. The strength in job activity carried over to new optimism for income prospects with optimists, at 15.4 percent, once again ahead of pessimists which total a modest 12.7 percent.
Another plus was that rising gas prices have yet to worry consumers whose inflation expectations were unchanged at plus 5.5 percent. But basically, improved job prospects are outweighing concerns about higher gasoline prices.
 Recent data on manufacturing have been mixed. Durables orders dropped in January after earlier gains and manufacturing surveys in February were mixed.
 New factory orders for durables in January fell back 4.0 percent, following a revised 3.2 percent jump in December (prior revised estimate, up 3.0 percent) and 4.2 percent surge in November. Excluding transportation, durables fell 3.2 percent after a revised 2.1 percent advance in December (prior revised estimate, up 2.2 percent) and 0.3 percent rise in November.
By components, weakness was led by transportation but other components were mostly down. Transportation dropped 6.1 percent in January, following a 6.4 percent boost the prior month. Subcomponent weakness was in nondefense and defense aircraft (very volatile series) as motor vehicles rose somewhat. Outside of transportation, orders were down in most major subcomponents though some were up.
Business investment in equipment stalled in January as nondefense capital goods excluding aircraft dropped 4.5 percent, following a 3.4 percent jump in December. Shipments for this series declined 3.1 percent after rising 2.8 percent the prior month. This was not a good start for the equipment component of business fixed investment in first quarter GDP.
The durables orders indicator lived up to its reputation as the likeliest most volatile monthly series among U.S. among major indicators. It appears to be two steps forward and then one step backward.
 Activity in the manufacturing sector slowed in February based on the ISM's composite index which came in at 52.4, above 50 to indicate monthly growth but below January's 54.1 to indicate a slower rate of monthly growth.
Forward momentum eased slightly but also remained positive as the new orders index slowed to 54.9 from 57.6 in January, as did backlogs, at 52.0 versus 52.5. Production also slowed, 55.3 versus 55.7, as did employment, at 53.2 versus 54.3. But February's rates are respectable and not that much different than January.
The next national data on manufacturing will be this coming week’s employment report for February which will post not just manufacturing employment but also production worker hours which the Fed uses in initial estimates for the manufacturing component in industrial production. Meanwhile, Fed regional manufacturing indexes showed general improvement in February.
 Manufacturing is gaining strength in Texas, according to the Dallas Fed. The general business activity index improved to 17.8 in February from 15.3 the month before. The breakeven level is zero in Fed District manufacturing surveys—in contrast to 50 for ISMs. The latest number was the highest reading since November 2010. Production picked up the pace, rising to 11.2 from 5.8 the month before. However, the new orders index showed slower growth at 5.8 versus 9.5 in January.
Labor market indicators reflected a sharp increase in hiring and longer workweeks. The employment index jumped to 25.2, its highest level since the beginning of 2006. Twenty-nine percent of firms reported hiring new workers, while 4 percent reported layoffs. The hours worked index continued to suggest average workweeks lengthened.
 Manufacturing also is picking up in the mid- and south Atlantic coast as the Richmond Fed's composite manufacturing index in February rose a very sizable eight points to 20. New orders jumped 7 points to 21. Backlog orders, shipments, employment, and the workweek all show solid monthly acceleration in the Richmond district. Overall, manufacturing has been positive and improving for several months.
Price readings, despite the increase underway for oil prices, are stable.
Regional manufacturing reports showed strength in January which contrasted sharply with January durables orders at the national level. And regional manufacturing indexes point to accelerating strength for February.
 General economic activity in the Chicago area grew at a faster pace in February as the Chicago ISM composite index rose 3.8 points to a robust 64.0. And forward momentum is even stronger as the new orders index jumped to 69.2 from 63.6 in January. New orders in this report have been strong throughout the recovery and especially over the last six months. Orders are moving into backlog which rose more than five points to a plus 50 reading of 53.6 that indicates a tangible monthly build.
Businesses in Chicago are hiring with the employment index up a very strong 9.5 points to 64.2. Production is up four points in the month to 67.8. The Chicago report has been perhaps the very strongest of any regional report this recovery. The Chicago ISM covers manufacturing and non-manufacturing sectors.
 It sometimes is hard to get a handle on how much housing may be improving. Sales data based on contract signings are not as reliable as in the past due to tougher requirements for financing. Nonetheless, the latest pending home sales number is a positive as contract signings for existing home purchases rose 2.0 percent in January and point to strength ahead for final sales. January's strength was centered in the South which is by far the largest region for home sales. Year-on-year, the region shows a very strong 10.5 percent gain which points to building strength for already solid national year-on-year growth of 8.0 percent.
Though contracts often do not make it to closing due to credit and appraisal snags (and the failure rate for contracts is up this recovery), the latest report hints at a rising economic contribution from the housing sector.
 Home prices are still under pressure from foreclosures and sluggish demand. The S&P Case-Shiller 20-city composite index (SA) for December fell a very steep 0.5 percent, following a 0.7 percent decrease the month before. The year-on-year rate ended 2012 with a minus 4.0 percent showing, two tenths steeper than the rate in November and the worst reading since, as the report stated, the housing crisis began in mid-2006.
Unadjusted readings for the 20-city index, which are closely watched in this report, tell the same story with the year-on-year rate also down 4.0 percent and with the monthly rate down 1.1 percent (note that adjusted data, where the monthly decline is about half the unadjusted rate, compensate for cold weather effects on activity). A look across individual cities shows 12 of the 20 cities with adjusted monthly declines and some quite severe including Detroit at a monthly minus 3.5 percent, Atlanta at minus 1.3 percent, and Chicago at minus 1.1 percent.
The bottom line is that while sales may be improving, prices are still under downward pressure. Foreclosures are adding to supply and price discounting is what is boosting sales.
 Despite problems with prices, housing is gradually improving and the latest construction spending report confirms that. However, other construction sectors are oscillating. Housing construction improved in January but was offset by declines in outlays on nonresidential and public components. Construction spending in January slipped 0.1 percent, following a 1.4 percent increase the prior month and a 1.9 percent jump in November.
The decline in January was led by a 1.5 percent decrease in private nonresidential outlays after a 2.1 percent gain the month before. Public outlays dipped 0.2 percent after a 0.7 gain in December. Residential spending advanced 1.8 percent after a 1.5 percent boost the prior month, reflecting recent gains in housing starts.
The January number was disappointing but follows recently healthy gains. While not robust, construction still appears to be on a modest uptrend.
The latest Beige Book was moderately positive with 11 of 12 Fed Districts reporting improved growth in recent weeks. Manufacturing continued to expand at a steady pace with many Districts reporting increases in new orders, shipments, or production and several Districts indicating gains in capital spending, especially in auto-related industries. Retail sales were up in most Districts on a year-ago basis although mild winter weather hurt seasonal sales somewhat. Auto sales were mixed by District.
Residential real estate activity increased modestly in most Districts. Commercial real estate was positive in some Districts but unchanged in others. Hiring increased slightly across several Districts, and contacts in a variety of industries faced difficulties finding skilled workers. Wage pressures were generally contained, and prices of final goods remained stable.
Overall, the latest Beige Book is favorable toward a recovery that is slowly gaining traction. However, as Fed Chairman Ben Bernanke noted this past week in Congressional testimony, the economy is still growing relatively slowly compared to potential.
Essentially, January numbers were soft but available February data are notably stronger with motor vehicle sales a standout. Regional manufacturing is gaining strength and the consumer is growing in confidence.
The highlight is Friday’s employment situation with earlier hints on job strength also coming from the ISM non-manufacturing survey (Monday) and ADP private employment (Wednesday). Consumer news includes consumer credit (Wednesday). Also, manufacturing is updated with factory orders (Monday) and with international trade posting at week’s end.
Factory orders rose a very healthy 1.1 percent in December on top of November's even stronger and upwardly revised 2.2 percent jump. The gain was centered in durable goods which jumped 3.0 percent in the month on top of November's 4.2 percent rise. Orders for nondurable goods, always affected by monthly swings in energy prices, fell 0.4 percent in December. More recently, new factory orders for durables in January fell back 4.0 percent, following a revised 3.2 percent jump in December.
Factory orders Consensus Forecast for January 12: -1.6 percent
Range: -2.2 to +0.5 percent
The composite index from the ISM non-manufacturing survey in January jumped to 56.8—a strong 3.6 points above December's upwardly revised 53.0. New orders jumped nearly 5 points to a 59.4 level that indicated strong monthly growth and acceleration in general activity in the months ahead.
ISM non-manufacturing composite index Consensus Forecast for February 12: 56.0
Range: 54.5 to 58.0
ADP private payroll employment came in with an estimate of 170,000 for January. This compared with the BLS private payroll increase of 257,000 from the employment situation report.
ADP private payrolls Consensus Forecast for February 12: 203,000
Range: 190,000 to 260,000
Nonfarm business productivity growth slowed in the fourth quarter in the initial estimate despite a gain in output as hours worked rose faster. Nonfarm business productivity eased to an annualized 0.7 percent in the fourth quarter after gaining 1.9 percent in the previous quarter. The output component improved to 3.6 percent from 2.8 percent in the third quarter. However, hours worked increased an annualized 2.9 percent after a 0.9 percent gain the third quarter. In turn, unit labor costs rebounded an annualized 1.2 percent, following a 2.1 percent decrease in the third quarter. More recently, fourth quarter GDP was revised up to 3.0 percent annualized growth from the initial estimate of 2.8 percent. Because the output component of productivity uses the same source data as GDP, productivity likely will be nudged up but hours worked will also play a role.
Nonfarm Business Productivity Consensus Forecast for revised Q4 11: +0.9 percent annual rate
Range: +0.7 to +1.5 percent annual rate
Unit Labor Costs Consensus Forecast for revised Q4 11: +1.2 percent annual rate
Range: +1.0 to +2.8 percent annual rate
Consumer credit outstanding rose $19.3 billion in December following November's breakthrough gain of $20.4 billion. Both months saw significant gains for revolving credit (mainly credit cards), up $2.8 billion in December following November's $5.6 billion surge. Until recently, consumers had been tight with credit card usage. Also, banks have slowed the pace of write-offs of bad debt. Non-revolving credit jumped $16.6 billion in December, reflecting healthy auto sales. Unit new auto sales in January—up a monthly 4.6 percent—suggest sizeable boost in the nonrevolving portion of consumer credit for the month.
Consumer credit Consensus Forecast for January 12: +$10.0 billion
Range: -$5.0 billion to +$19.4 billion
Initial jobless claims in the February 25 week came in at 351,000, down 2,000 from the revised prior week. The four-week average extended its long convincing trend downward, falling 5,500 to 354,000. Continuing claims in data for the February 18 week were down 2,000 to 3.402 million with the four-week average down 12,000 to 3.444 million.
Jobless Claims Consensus Forecast for 3/3/12: 351,000
Range: 345,000 to 360,000
Nonfarm payroll employment in January advanced 243,000 after jumping 203,000 in December and rising 157,000 in November. The net revisions for November and December were up 60,000. As for some time, private payrolls outstripped the total, increasing 257,000 in January, following a gain of 220,000 in December. Average hourly earnings rose 0.2 percent in January, following a 0.1 percent increase the prior month. The average workweek for all workers in January held steady at 34.5 hours. From the household survey, the unemployment rate dropped to 8.3 percent from 8.5 percent in December. This was the lowest rate in three years.
Nonfarm payrolls Consensus Forecast for February 12: 204,000
Range: 180,000 to 275,000
Private payrolls Consensus Forecast for February 12: 220,000
Range: 195,000 to 285,000
Unemployment rate Consensus Forecast for February 12: 8.3 percent
Range: 8.1 to 8.5 percent
Average workweek Consensus Forecast for February 12: 34.5 hours
Range: 34.5 to 34.6 hours
Average hourly earnings Consensus Forecast for February 12: +0.2 percent
Range: +0.2 to +0.4 percent
The U.S. international trade gap worsened in December due to a jump in imports outpacing a rise in exports. The trade gap expanded to $48.8 billion from $47.1 billion in November. Exports rebounded 0.7 percent after declining 1.0 percent in November. Imports advanced 1.3 percent in December, following a 1.0 percent gain the prior month. The worsening in the trade gap was led by the nonpetroleum goods deficit which widened to $36.5 billion from $34.1 billion the month before. The petroleum gap narrowed to $26.9 billion from $27.6 billion in November. The services surplus was essentially unchanged at $15.5 billion.
International trade balance Consensus Forecast for January 12: -$48.4 billion
Range: -$50.8 billion to -$46.5 billion
Wholesale inventories rose 1.0 percent in December, a strong build that was matched by a proportional 1.3 percent build in sales that left the stock-to-sales ratio unchanged at a very lean and efficient 1.15.
Wholesale inventories Consensus Forecast for January 12: +0.6 percent
Range: +0.5 to +1.4 percent
R. Mark Rogers is the author of The Complete Idiot’s Guide to Economic Indicators, Penguin Books, 2009.
Econoday Senior Writer Mark Pender contributed to this article.
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