Do last week’s economic releases support the Fed’s tapering stance?

Part 2
Do last week’s economic releases support the Fed’s tapering stance? (Part 2 of 10)

The economy shrugs off winter chill: Manufacturing gains momentum

Economic releases

Besides the FOMC meeting, the Treasury International Capital report and housing releases, economic data pertaining to the manufacturing and retail sectors figured prominently in the first three days of the week.

Part 2.1Enlarge Graph

The manufacturing releases

The Empire State Manufacturing General Business Conditions Index report for March, was issued by the New York Fed on Monday, March 17. The headline diffusion Index of Current Activity increased slightly to 5.61 in March from 4.48 in February, indicating moderate expansion in the manufacturing sector.

Industrial production figures for February were issued by the U.S. Federal Reserve on Monday, March 17. Industrial production increased 0.6% month-on-month. Capacity utilization rates in factories also increased to 78.8% as firms made up for January’s sluggish output levels.

One ETF that invests in the manufacturing sector is the Vanguard Industrials ETF (VIS). VIS tracks the MSCI U.S. Investable Market Industrials 25/50 Index. The index consists of stocks of large, medium, and small U.S. companies in the industrials sector in the aerospace and defense, construction and logistics among others. Top ten holdings in the ETF include logistics company, United Parcel Service (UPS) and aerospace company, Boeing (BA).

Part 2Enlarge Graph

Consumer-oriented releases

The Consumer Price Index (or CPI) figures for the month of February were released on Tuesday, March 18. Month-on-month increase in the CPI came in at 0.1%, in-line with expectations. The year-on-year increase in CPI (excluding food and energy costs) came in at 1.6% and was also in line with expectations.

The ICSC-Goldman Sachs Retail Store Sales Index report for the week ended March 15 was released on March 18. Retail same-store sales grew 0.7% and 1.5% week-on-week and year-on-year, respectively. However, both readings were down from last week when sales grew by 1.3% and 2.1% week-on-week and year-on-year, respectively.

The Johnson Redbook Retail Sales Index reported year-on-year growth in same-store sales at 2.8% for the week ended March 15, up 0.3% from the previous week. Both the ICSC-Goldman Sachs Index and the Redbook represent only about 10% of the nation’s total retail sales and are limited to the bigger chain stores. An increase or decrease in retail sales is likely to impact ETFs like the State Street SPDR S&P Retail ETF (XRT), which is composed of the retail sub-industry portion of the S&P TMI. Top 10 holdings in XRT include national retailer, Walgreens (WAG) (1.19%).

Part 3 of this series discusses an indicator that is bullish about manufacturing.

The Realist Discussions