U.S. Consumer Sentiment Rises to Level Not Seen Since 2004

Traders had the opportunity to react to a slew of U.S. economic data on Friday with housing coming in mixed and others ranging from factory output to consumer sentiment exceeding expectations.

Housing Starts and Building Permits

U.S. homebuilding fell more than expected in February as a plunge in the construction of multi-family housing units offset a second straight monthly increase in single-family projects.

According to the Commerce Department, housing starts declined 7.0 percent to a seasonally adjusted annual rate of 1.236 million units. Data for January was revised up slightly to show groundbreaking increasing to a 1.329 million-unit pace instead of the previously reported 1.326 million units.

Economists were looking for a drop in housing starts to 129.0 million units last month. Permits for future home building decreased 5.7 percent to a rate of 1.298 million units in February.

Capacity Utilization Rate

According to data released by the U.S. Federal Reserve, capacity utilization for the industrial sector climbed 0.7 percentage points in February to 78.1 percent, its highest reading since January 2015 but is still 1.7 percentage points below its long-run (1972-2017) average.

This report is important because it is a leading indicator of consumer inflation. Basically, when producers are nearing full capacity, they respond by raising prices, and their higher costs are usually passed on to the consumer.

The capacity utilization rate basically reflects the limits to operating the nation’s factories, mines and utilities. It’s still below pre-recession levels, above 80%, that could fan production costs and prices.

Industrial Production

U.S. industrial production surged 1.1% in February, the strongest gain since last October, the Federal Reserve reported Friday. The gain in output was well above Wall Street expectations of a 0.5% increase.

The internals of the report showed that manufacturing, construction and the energy sector had strong gains, more than offsetting a drop in utility output.

Consumer Sentiment

U.S. consumer sentiment rose more than forecast in the preliminary March reading, reaching a level not seen since 2004.

The University of Michigan’s mid-month report on consumer sentiment rose to 102 in March, its highest level since 2004. Traders were looking for a reading of 99.3, slightly below the previously reported 99.9.

The report suggests that consumers are focused on positive economic news rather than the recent stock market volatility and political uncertainty.  Optimistic mentions regarding recent tax reform legislation were weighed down, however, by negative views of steel and aluminum, the survey found.

In other news, Preliminary University of Michigan Inflation Expectations rose to 2.9%, up from 2.7%.

“Importantly, near term inflation expectations jumped to their highest level in several years, and interest rates were expected to increase by the largest proportion since 2004,” the survey’s chief economist Richard Curtin said in a statement.

JOLTS Job Openings

The Bureau of Labor Statistics reported on Friday that job openings in the U.S. surged to a record 6.3 million. The number of new positions surged by 645,000 as of the end of January, a new high for the Job Openings and Labor Turnover Survey (JOLTS).

The report suggests slack remains in the labor market, as employers continue to hire and the pool of available jobs grows.