New York-Area Manufacturing, National Homebuilder Sentiment Rise and Output, Housing Starts Signal Economic Recovery

TheEmpire State manufacturing index rose to 24.91, up from 15.92 in January. It was the highest reading since October and far above Wall Street estimates for 18.

On the surface, the volatile index appeared to reinforce the impression that industrial companies are continuing to bounce back from the long recession. However, some analysts said the details were somewhat more bearish.

“A lot of the improvement was driven by a correction of inventories,” said Anna Piretti, senior U.S. economist at BNP Paribas in New York. “It’s a temporary factor. What worried me more was a sharp decline in new orders.”

The inventories index rose sharply, to zero from -17.33, its highest reading in more than a year. That suggests firms are no longer paring inventories.

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But the new orders index tumbled to 8.78 in February from 20.48 in January — a warning sign that activity could decelerate in future. [Read the full article]

January industrial output climbed 0.9 percent, with gains in manufacturing, mining and energy utilities, the Federal Reserve reported Wednesday. That is the first across-the-board strength since August 2009.

The results are a more meaningful sign of economic progress than December’s number, which the Fed revised up to 0.7 percent from the 0.6 percent reported earlier. That increase was driven by weather-related increases in utility production, while manufacturing posted a 0.1 percent loss.

Meanwhile, housing starts rose 2.8 percent to an annual rate of 591,000 units in January, the best since July, the Commerce Department said. The better-than-expected gain raised hopes that the construction industry is beginning to mount a sustained rebound from its worst slump in decades.

Applications for building permits, considered a good barometer of future activity, fell 4.9 percent to a rate of 621,000, but that was after two months of large increases. [Read the full article]

The Fed’s discount rate on direct loans to banks will rise 25 basis points to 0.75% starting Friday. The central bank cited ” continued improvement in financial market conditions.”

Analysts had expected the move after Fed chief Ben Bernanke last week outlined plans to gradually end lending programs to banks and businesses after credit markets froze following the bankruptcy of Lehman Bros. in late 2008.

“It caught people off guard, that’s for sure. We didn’t expect it to come out at 4:30 p.m. on a quiet Thursday,” said Jason Rogan, director of U.S. Treasury trading at Guggenheim Partners.

The central bank will shorten the maturity period for loans to depository institutions on March 18. The Fed raised the interest rate on TAF auctions of loans to those institutions by 25 basis points to 0.5% and said the final TAF auction would be held March 8. [Read the full article]

The consumer price index edged up 0.2% in January while prices excluding food and energy slipped 0.1%, the Labor Department said Friday. That was the first monthly decline since December 1982.

The benign inflation news gives the Federal Reserve more time to keep interest rates at record-low levels to shore up the economy and should ease worries in financial markets that a Fed rate hike is more imminent.

The news on consumer prices was better than expected, especially after a government report Thursday showed that wholesale prices shot up 1.4% in January.

“After a few reports showing higher inflation trends, we saw proof today that they have yet to trickle down to the consumer level,” said Jennifer Lee, senior economist at BMO Capital Markets. “What price pressures did exist all came from the volatile food and energy categories.”

The 0.2% percent rise in overall prices reflected a 2.8% jump in energy costs, the biggest one-month gain since August. [Read the full article]

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