Government stimulated consumption over the last year coupled with unprecedented restrictions on global production has driven the intersection of supply and demand into unprecedented territory. Price shocks as reported by manufacturers are being felt both upstream and downstream; it may only be a matter of time before these shocks are more directly felt at the consumer level.
Compared with one year ago, February’s monetary base was up 57.7%, which was the sixth month in a row and eighth in the last 10 months with faster than 50% growth.
Thanks to low interest rates, stimulus, and shifting spending patterns, consumer durable goods spending continued to grow at its fastest rate in decades.
Real disposable income was 8% below January’s level. However, it was still higher than the disposable income for any month since July 2020.
It is likely that the January orders were affected by shift and/or plant shut downs in the automotive industry due to a lack of computer chips. Also, it should be expected that February order totals will be somewhat sluggish for the same reason in addition to the deep freeze from Texas through much of the Midwest.
Strong demand for new, large and luxury vehicles comes at a time when automotive production is 20% below its pre-pandemic level. Much of this disconnect between supply and demand is a matter of crippled supply chains and unfortunate events.
The last 25 years of data of the Federal Reserve Bank’s Fed Funds rate, corporate loan rates, inflation and economic growth testify to the complexities of the modern economy. The data reviewed in this piece provide recent examples of just how unpredictable the economy can be and just how little control the Fed has when trying to construct a particular economic outcome.
February industrial production contracted 3.8%. The contraction accelerated because of the winter storm in Texas and other parts of the midwest hindered production and significant supply chain disruption, particularly regarding computer chips, forced a number of manufacturers to slow or stop production.
In February, durable goods capacity utilization was 71.9%, which was the lowest rate of capacity utilization since October 2019. However, it should rebound in March.
There were 117,200 housing permits filed in February 2020, which was the highest total for February since 2006.
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