Construction Spending Softened in January

Construction spending fell in January for the first time since the end of 2022, surprising economists who expected an uptick.

Spending on construction fell to $2.1 trillion, down 0.2% from December, according to Friday's report from the Census Bureau. Economists expected a 0.3% month-over-month increase. However, spending was up 11.7% from the same time last year.

Nonresidential spending fell 0.9%, dragging down the overall average. "The drop appears partially owed to harsh winter weather that much of the nation experienced during the month," wrote Wells Fargo Economists Charlie Dougherty and Patrick Barley. "Although manufacturing project spending once again rose, educational, retail, warehouse and lodging construction all declined notably."

Manufacturing Activity Lower Than Expected In February

Manufacturing activity fell for the 16th consecutive month in February, defying economists' prediction of an uptick.

Economists expected a 49.5% reading of the Institute For Supply Management's Manufacturing Index, according to a survey by Dow Jones Newswires and Wall Street Journal. However, the data surprised by falling to 47.8% down from January's 49.1%.

"The interest-rate sensitive U.S. manufacturing sector is likely to continue struggling until the Fed starts cutting interest rates, which isn’t expected to occur until mid-year at the earliest," wrote Jay Hawkins, Senior Economist at BMO. While new orders, production and employment all declined, anecdotally, manufacturers were hopeful.

"The numbers were at odds with the more positive commentary released alongside the report, which suggested firms in many sectors were becoming more optimistic about the outlook," wrote Michael Pearce, Deputy Chief US Economist, Oxford Economists. "In that sense, February's decline looks like a temporary weak patch in an otherwise upward trend."

Barkin Discounts January Inflation Data But Is In ‘No Hurry’ to Cut Rates

In an interview with CNBC Friday morning, Richmond Federal Reserve Bank President Tom Barkin said yesterday’s Personal Consumption Expenditures index was just “one data point” and inflation was still on the right path. However, he remained uncommitted to timing any rate cuts.

“Inflation is coming down, and at 2.4%, we should be cheering that,” Barkin said.

While the PCE report showed a reacceleration of inflation in January, Barkin said that data collected from the first month of the year can be difficult to evaluate, with seasonal adjustments and events being among the factors that can skew results. 

When asked if there would be rate cuts this year, he replied “we’ll see,” adding that he was in “no hurry” to make a decision. But, he said it didn’t seem likely that the economy would reaccelerate to a point where the Federal Reserve would need to raise rates. “The economy is going to tell us what to do,” he said. “Overall numbers are likely to come down, we have a shot here to bring inflation down to close to our target.”

-Terry Lane