There are weeks when the analyst is left trying to make sense of the economy without much to work with and then there are weeks like this one when the calendar is packed with data that might make the current economic trend a little easier to puzzle out. The role of data is always debated as there is no such thing as perfect information and there is no way to accurately predict the future. The best that can be done is to look at what has happened in the past and assume that what motivated people before will motivate them again. The adage that has always been applied to data is never truer than when applied to economics—“you can have data that is fast or you can have data that is accurate, but you can’t have both.” The economic data that gets released this week is a mixed bag of immediate information and some reassessment of older information.
One meeting that will create a lot of interest will be that of the Federal Reserve’s Federal Open Market Committee. This meeting is getting more than normal attention due to the likely changes in how the Fed plans to deal with forward guidance on interest rate policy.
The old system of guidance held that the unemployment rate would be a trigger for Fed action—a rate of 6.5% would be low enough for the Fed to think about hiking interest rates. It is now clear that no such action is under consideration despite the fact that the jobless rate is now at 6.7%. Meanwhile, it is almost certain the Fed will stay on course with the tapering process with another $10 billion reduction in bond-buying.
A second thing to watch for this week will be housing data. This is the sector that is the most affected by bad weather, as it is just not possible to do much in the way of construction during bitter cold and snowstorms. The lousy weather in January was responsible for a 16% decline in activity, and the expectation is that February will recover by less than 4%. If there is no uptick in the latest data there is going to be some real fear for the spring.
The third set of releases to focus on will be the numbers on industrial production. Industrial production stats include the output that comes from the manufacturing sector as well as utility output. It will be necessary to dig further down into the data to separate the good news in the utility sector from the bad news in the rest of the industrial sector, as profits for the utilities generally means costs for everybody else.
The data this week will not answer every economic question, but it may give some hint as to what impact the weather has had and whether the Fed is at all concerned about it. If recurring problems are still present after the spring flowers bloom, there will be more reason to worry.
- Chris Kuehl, PhD, Armada Corporate Intelligence