February hotting up for manufacturing

The first regional Fed surveys for manufacturing in the current month both showed very strong surges in activity.

The Empire State Manufacturing hit a two and a half-year high with a reading of 18.7, up from 7 in January and 0 to negative for the last two years. This is near the level it reaches in the good times at around 20.

The Philly Fed current conditions surged to post-recession highs, while expectations remained at recent strong levels. The employment component also stayed up at recent highs.

Residential construction is also looking like it is picking up, with new positive trends confirmed in both Building Permits and Housing Starts.

The Trump bounce does seem to be leading to some strong action amongst firms in the US. Quite why the Industrial and Manufacturing indexes for January were disappointing relative to the optimism from surveys is something of a mystery.  Are the regional Fed surveys of manufacturing just picking up noise? Perhaps. They were very strong throughout 2014 and eventually the industrial and Manufacturing Indexes caught up with some decent YoY growth rates of over 3% and 2% respectively.

Unfortunately, the Fed ended QE3 prematurely, tightening monetary policy. The USD surged and NGDP growth fell flat. A self-sustaining recovery was aborted.  One difference is that back in 2014 residential construction was weak but is now much healthier.

The big question remains, what will the Fed do. Or rather, who will be running the Fed, and what will they do? We still don’t know.


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