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Economic news in the U.S. was dominated by FedSpeak. However, overseas news had notable impact along with the start of earnings season.
 The latest weekly losing streak for equities is now two weeks. Several factors came into play. Equities fell Monday in carryover of the lousy mood set with the prior Friday’s anemic employment situation report as the March payroll gain of 120,000 was about half of expectations. Equity markets had been closed Friday for Good Friday. Stocks continued downward Tuesday as a jump in Spanish and Italian bond yields boosted concern that Europe’s debt crisis is worsening due to slowing growth.
Stocks recovered moderately at mid-week. Lift came after close Tuesday as Alcoa’s quarterly numbers included an unexpected first quarter profit. Materials and financials gained notably. Homebuilders gained on a report from Wells Fargo showing a strengthening in orders. Also supporting stocks for the day was a modestly encouraging Beige Book.
Equities on Thursday posted healthy increases but lift for the day came from the night before on comments by Fed Vice Chairman Janet Yellen that rates are likely to remain low for “several years.” Prior to Thursday open, New Fed President William Dudley endorsed Yellen’s view. FedSpeak more than offset an unexpected pickup in initial jobless claims.
At week’s end, news out of China thumped stocks as the country’s GDP growth rate for the first quarter came in lower than expected. The year-ago pace slowed to 8.1 percent from 8.9 percent in the fourth quarter. Expectations had been for 8.4 percent with rumors circulating of a 9 percent figure.
Overall, the week ended down notably on overseas news with damage limited by FedSpeak and early quarterly earnings reports. For the week, one of the hardest hit sectors was financials—largely related to European concerns.
Equities were down this past week. The Dow was down 1.6 percent; the S&P 500, down 2.0 percent; the Nasdaq, down 2.2 percent; the Russell 2000, down 2.7 percent; and the Wilshire 5000, down 2.0.
For the year-to-date, major indexes are up as follows: the Dow, up 5.2 percent; the S&P 500, up 9.0 percent; the Nasdaq, up 15.6 percent; the Russell 2000, up 7.5 percent; and the Wilshire 5000, up 9.2 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Treasury yields were little changed Monday as bond traders had already made their moves after the jobs report as the bond market was open for a partial day on Good Friday.
Tuesday’s boost in yields on Spanish and Italian bonds led to flight to safety in Treasuries.
Rates firmed at mid-week on both belief that Spain’s sovereign debt problem would not require a bailout and as fixed income funds moved into equities. Rates nudged up Thursday on signs of improvement in Europe and as funds continued to move into equities, encouraged by comments on Fed policy by Vice Chair Janet Yellen.
But rates dropped moderately Friday on news of China’s slower-than-expected growth. Worries about Spanish banks resumed, also pushing down Treasury rates. Net for the week, yields were down moderately on signs of slowing economic growth and still flight to safety from Europe.
For this past week Treasury rates were down as follows: the 2-year note, down 4 basis points; the 5-year note, down 5 basis points; the 7-year note, down 5 basis points; the 10-year note, down 6 basis points; and the 30-year bond, down 9 basis points. The 3-month T-bill rose 1 basis points.
 Net, the spot price of crude was dead in the water this past week, edging down about half a buck.
Crude eased Monday on the prior Friday’s jobs report. The decline accelerated somewhat Tuesday on forecasts of higher U.S. crude supplies.
But on Wednesday, the government reported a drop in fuel stockpiles, bumping up crude. Thursday, crude rose on a drop in the dollar after the Fed’s Janet Yellen made her dovish comments on the duration of the Fed’s loose policy.
The week closed on a down note for crude, reflecting disappointing news on growth for China’s economy.
Net for the week, the spot price for West Texas Intermediate dipped 48 cents per barrel to settle at $102.83. Still, crude has been on a modest downturn for the past five weeks, declining about $4.50 per barrel over the period. With economic growth slowing, some argue that oil prices have peaked and are likely to ease somewhat more.
Nearly all of the economic news this past week was mixed. FedSpeak may have hit a weekly high and it, too, was mixed.
 For first quarter GDP, it likely is good—but maybe not so good for future quarters. The U.S. trade gap unexpectedly shrank in February to $46.0 billion from $52.5 billion in January. This was far below the market median forecast of $51.7 billion. Exports nudged up 0.1 percent after gaining 1.5 percent in January. But imports dropped 2.7 percent in February, following a 2.1 percent boost the month before.
The narrowing in the trade gap was led by the non-petroleum goods deficit which shrank to $32.9 billion from $36.8 billion in January. The petroleum goods gap also narrowed—to $27.8 billion from $29.6 billion. The services surplus expanded to $15.4 billion from $14.8 billion.
 Yes, the numbers in the goods components are favorable for the first quarter GDP calculation. The chain-dollar goods trade deficit posted at $44.1 billion versus $49.1 billion in January. So far, it looks like this part of net exports is adding to first quarter GDP somewhat. The first quarter average currently is $46.6 billion, down from the fourth quarter average of $47.7 billion. But potential for offset in the GDP calculation may come from lower estimates of business investment in equipment (softer imports) and consumer spending.
Back to nominal trade numbers. For the latest month, goods exports were led by consumer goods. But overall exports were still essentially flat, indicating soft demand overseas. Even though the drop in imports is usually seen as a positive, the import numbers actually raise question marks about domestic demand. The drop was led by large decline in imports of consumer goods, followed by industrial supplies. The decline in consumer goods may indicate that businesses are less confident about future demand. However, an alternative view is that January imports were above trend and the February drop was partly just a return to trend growth.
 Markets reacted poorly to the latest Reuters/University of Michigan sentiment reading as the composite index slipped to 75.7 from final March at 76.2.
The notable weakness was in the consumer's assessment of current conditions which, at 80.6, fell 5.4 points in an unusually steep decline last seen in July last year during the government's deficit cliff hanger. Likely playing roles in the current assessment are higher gasoline prices, a disappointing jobs report, and some reversal of improvement in jobless claims.
 The report's expectations component was a positive, up 2.7 points to 72.5 for its best reading of the recovery. This suggests that consumers believe the current disappointment will be short lived.
The gain in expectations likely reflects expectations of lower gas prices. A big positive in the report was a slip in one-year inflation expectations, down a big five tenths to 3.4 percent. Five-year expectations are unchanged at 3.0 percent.
Through March, the composite index has had eight straight months of gains for final monthly readings. But readings will have to pick up at month end in order to keep the streak alive.
 What’s the deal' PPI inflation in March was unexpectedly soft at the headline level on lower energy costs. Did the Bureau of Labor Statistics miss seeing those higher gasoline prices at the pump' Well, there is an explanation, but first the key numbers from the published report.
The PPI was unchanged in March after surging 0.4 percent in February. The core PPI, however, posted a 0.3 percent rise, following a gain of 0.2 percent in February. A big part of the core increase came from a 0.8 percent jump in prices for passenger cars and a 0.7 percent jump for light trucks.
 By major components, energy decreased 1.0 percent, following a 1.3 percent spike in February. Gasoline dipped 2.0 percent after a 4.3 percent boost the prior month. Food increased 0.2 percent after dipping 0.1 percent in February.
Bear in mind that all of these numbers are seasonally adjusted. March is a month in which gasoline prices typically rise significantly on a seasonal basis. But with unadjusted gasoline prices already high in February, there was a less than typical unadjusted percentage gain in gasoline prices for March. Applying normal seasonal factors led to a decline in March seasonally adjusted gasoline prices. The flip side to this is that February was likely overstated on a seasonally adjusted basis.
On a not seasonally adjusted basis for February, the year-ago headline PPI was up 2.8 percent compared to 3.3 percent for February while the core was up 2.9 percent in March versus 3.0 percent the month before on an NSA year-ago basis.
 CPI inflation at the headline level in March eased slightly but remained on the warm side due to higher energy. Meanwhile, the core rate also firmed. The consumer price index increased 0.3 percent, following a 0.4 percent boost in February. Excluding food and energy, the CPI firmed to a 0.2 percent gain in March, following a 0.1 percent uptick the prior month.
By major components, energy jumped 0.9 percent, following a 3.2 percent surge in February. In contrast to the decline at the PPI level, gasoline rose 1.7 percent after a 6.0 percent spike. Not seasonally adjusted gasoline surged 8.1 percent, topping the increase expected by seasonal factors.
Food price inflation increased to 0.2 percent from no change in February.
Within the core, apparel prices rebounded after declining in February. Used car prices jumped sharply. And shelter costs firmed.
Year-on-year, overall CPI inflation eased to 2.6 percent from 2.9 percent in February (seasonally adjusted). The core rate firmed to 2.3 percent from 2.2 percent on a year-ago basis. On an unadjusted year-ago basis, the headline number was up 2.7 percent in March, compared to 2.9 percent in February. The core was up 2.3 percent versus 2.2 percent in the prior month, not seasonally adjusted. Keeping the core rate up are year-ago gains (NSA) of 4.9 percent for apparel and 3.5 percent for medical care. Housing is up 1.7 percent and may be below the headline number but it is no longer a negative that it had been following the recent recession.
Currently, slack resource utilization is not getting inflation down to the Fed’s inflation goal of 2 percent PCE inflation. Headline inflation looks headed in the right direction but reaching the Fed’s goal at this level requires continued softness in energy costs (the level may still be high but it is the direction and speed of change that affects overall inflation). And the core rate has been stubbornly above 2 percent even with high unemployment. Even though Fed doves have been speaking a little louder recently, the newest CPI report will give ammunition to the inflation hawks.
The latest Beige Book indicated that the economy continued to grow at a “modest to moderate pace” from mid-February through late March. However, the higher cost of energy is a growing concern.
Manufacturing is a notable positive with gains noted in automotive and high-technology industries. Demand for professional business services showed modest to strong growth and freight volume was mainly higher. Consumer spending is seen as positive with warm weather helping boost sales. New-vehicle sales were reported as strong or strengthening across much of the United States—though the latest unit new motor vehicle sales eased from a strong pace.
Construction is improving although mainly due to expansion in the construction of multi-family housing. Activity in nonresidential real estate increased or held steady in most Districts.
Hiring was steady or showed a modest increase across many Districts. Difficulty finding qualified workers, especially for high-skilled positions, was frequently reported. Upward pressure on
wages was constrained. Overall price inflation was modest. However, contacts in many Districts commented on rising transportation costs due to higher fuel prices.
Overall, the Beige Book showed continued forward momentum although at a modest to moderate pace.
Fed speakers put on an extravaganza this past week with no less than 15 speeches. Comments about the current economy were similar. The biggest differences were on the likely timing of policy change and on whether currently explicit guidance in the FOMC statement is a good idea. Some comments moved the markets but it was not Chairman Ben Bernanke having the biggest impact.
The biggest mover was Vice Chairman Janet Yellen. Wednesday night, her speech lifted equity traders’ spirits with comments during Q&A that she expects very loose policy for “several years.” Yellen focused on the unemployment rate remaining for some time below that consistent with the Fed's mandate and noted the likelihood that core inflation will remain low. In contrast to some regional Fed presidents, she indicated that she is more willing for additional quantitative easing.
Chairman Ben Bernanke took the week off regarding current monetary policy, speaking on financial stability and the history of the recent financial crisis. However, in recent weeks, he has increased his comments that unemployment is coming down too slowly due in large part to sluggish growth.
Joining Yellen this week on the need for low rates through at least 2014 was New York Fed President William Dudley. He said that recent employment data warn that the economy may not be as strong as recently believed.
Philadelphia’s Charles Plosser repeated that he does not like the explicit 2014 commitment, saying that the timing of policy change should depend on economic performance, not a calendar date.
Other regional Fed presidents are more concerned about policy staying too loose too long. Minneapolis Fed President Narayana Kocherlakota said that despite high unemployment, the risk of rising inflation may be stronger than many believe. He sees the possibility of a rate increase as early as this year.
Atlanta Fed President Dennis Lockhart took more of the middle ground. He stated that the FOMC statement guidance for low rates through 2014 is still in line with the needs of the economy. He called the latest jobs data disappointing, indicating that the economy is still fragile. He characterized the end of reinvesting pay down on mortgage-backed securities as a form of tightening. This suggests an inclination for the Fed to maintain the level of its balance sheet even if not expanding it. But he does not see much benefit from an additional round of quantitative easing.
Despite FedSpeak being mixed, markets focused more on the comments that policy is going to be loose for quite some time.
The Fed policy debate picks up in earnest at the next FOMC meeting on April 24-25. Fed Chairman Bernanke will conduct a press conference on the 25th just after the release of the Fed’s updated forecasts.
The limited economic news this past week was mixed and atypical weather in recent months has made deciphering the strength of current economic momentum and inflation more difficult. However, there are no signs of the U.S. recovery completely faltering—especially with monetary policy extremely loose.
This week’s highlights are retail sales (Monday) and housing starts (Tuesday). With March data we will get a better idea of recent unseasonal weather effects. Existing home sales (Thursday) also update housing. A troika of manufacturing reports post—Empire State (Monday), industrial production (Tuesday), and Philly Fed (Thursday).
Retail sales in February rose a strong 1.1 percent after gaining 0.6 percent the month before. Strength was in the motor vehicles component which rebounded 1.6 percent after dipping 1.6 percent in January. Excluding motor vehicles, retail sales jumped 0.9 percent in February after increasing 1.1 percent in January. Lifted by higher prices, gasoline sales increased 3.3 percent after a 1.9 percent jump the prior month. Sales excluding autos and gasoline in February improved 0.6 percent, following a 1.0 percent gain the prior month. Gains were widespread. Looking ahead, the March number may be a battle between a drop in unit new motor vehicle sales versus a likely gain in gasoline sales.
Retail sales Consensus Forecast for March 12: +0.3 percent
Range: +0.1 to +0.7 percent
Retail sales excluding motor vehicles Consensus Forecast for March 12: +0.6 percent
Range: +0.4 to +1.1 percent
Less motor vehicles & gasoline Consensus Forecast for March 12: +0.5 percent
Range: +0.2 to +0.9 percent
The Empire State manufacturing index in March rose to 20.21 from 19.53 the month before. Strength was in inventories, number of employees, and delivery time. Weakness was in a slowing in new orders growth (though still positive) and shipments growth. Readings on the six month outlook were very positive but slightly less positive than February and January.
Empire State Manufacturing Survey Consensus Forecast for April 12: 18.00
Range: 10.00 to 22.70
Business inventories rose 0.7 percent in January, right in line with sales to keep the stock-to-sales ratio unchanged at 1.27. The retail component had a very strong build of 1.1 percent, more than double the 0.5 percent gain for retail sales (which here exclude food services). The mismatch raised the stock-to-sales ratio for this sector by one tenth to 1.33 which, however, is still lean. Builds in the previously released other two components -- factory inventories and wholesale inventories -- were well in line with sales.
Business inventories Consensus Forecast for February 11: +0.6 percent
Range: +0.4 to +0.8 percent
The NAHB housing market index in March was unchanged at 28 with three of four regions, West the exception, reporting gains. The six-month component was up two points to 36, which is more than double the extremely depressed level of 17 in September and 15 level back in June. The assessment of the current market was less upbeat this month, with the component down one point to a 29 level that, however, is also more than double the level back in September.
NAHB housing market index Consensus Forecast for April 12: 29
Range: 27 to 31
Housing starts dipped 1.1 percent in February after gaining 3.7 percent in January. However, starts in January were upwardly revised, leaving the latest levels essentially as expected and the overall picture a little better. February’s 0.698 million unit pace was up 34.7 percent on a year-ago basis. Housing permits were moderately stronger than starts. Permits rose 5.1 percent, following a 1.6 percent boost in January.
Housing starts Consensus Forecast for March 12: 0.700 million-unit rate
Range: 0.675 million to 0.738 million-unit rate
Housing permits Consensus Forecast for March 12: 0.713 million-unit rate
Range: 0.690 million to 0.744 million-unit rate
Industrial production in February was unexpectedly soft but due to a drop in mining and flat utilities. Manufacturing rose moderately strong. Overall industrial production was unchanged in February after an upwardly revised 0.4 percent boost the month before. By major components, manufacturing increased 0.3 percent, following a 1.1 percent surge in January. For the latest month, utilities were unchanged after a 2.2 percent drop in January. Mild winter weather has weighed down on utilities output. Meanwhile, mining output declined 1.2 percent, following a 1.6 percent dip the prior month. Overall capacity utilization posted at 78.7 percent versus 78.8 percent in January.
Industrial production Consensus Forecast for March 12: +0.3 percent
Range: -0.2 to +0.7 percent
Manufacturing production component Consensus Forecast for March 12: +0.3 percent
Range: -0.2 to +0.5 percent
Capacity utilization Consensus Forecast for March 12: 78.6 percent
Range: 78.2 to 79.1 percent
Initial jobless claims rose 13,000 in the April 7 week to 380,000 for the highest level since late January. The four-week average was up an especially steep 4,250 to 368,500 which is the highest level in a month. These results point to a stalling of recent improvement in the jobs market.
Jobless Claims Consensus Forecast for 4/14/12: 365,000
Range: 350,000 to 375,000
Existing home sales in February slipped 0.9 percent last month to a 4.59 million annual rate. January was revised 13,000 higher to 4.63 million for a 5.7 percent gain. Good news for February was that prices firmed, up 1.3 percent to a median $156,600 which followed a steep slide in January of 4.7 percent. However, this price measure is not a repeat sales measure (comparing same houses), and is heavily affected by which end of the market is strong (low price or high price).
Existing home sales Consensus Forecast for March 12: 4.62 million-unit rate
Range: 4.50 to 4.72 million-unit rate
The general business conditions index of the Philadelphia Fed's Business Outlook Survey improved to 12.5 in March from 10.2 in February. The unfilled orders index turned negative. But plant managers are somewhat optimistic. They are hiring at a mildly stronger pace as the number of employees index rose to 6.8 from 1.1 in February. Also, the inventories index swung from minus 12.9 to positive 0.9, suggesting that manufacturers see the need to build inventories.
Philadelphia Fed survey Consensus Forecast for April 12: 12.0
Range: 5.0 to 15.5
The Conference Board's index of leading indicators in February surged a giant 0.7 percent. Improvement in jobless claims was the key lift. Also, improvement on European sovereign debt was sneaking in. The interest rate spread now shares the number one spot with jobless claims. The fed funds rate has been little changed and near zero. Meanwhile, the 10-year Treasury rate has firmed on reversal of flight to safety on progress on Greek debt, leaving the spread higher. The third and fourth ranking positives for February were the stock market and building permits.
Leading indicators Consensus Forecast for March 12: +0.2 percent
Range: 0.0 to +0.3 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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