Weekly Update: FOMC’s Dovish Shift Since December Likely to Show in Lower Dots

At this week’s FOMC meeting, we expect the dots to be revised down sharply but the macro projections through 2021 to be broadly similar to those from December. In addition, we expect more news on the balance sheet this week, in particular an announcement that runoff will cease in the second half of this year. See our FOMC Briefing for our complete take on this week’s meeting. There were no public remarks by FOMC  participants on monetary policy last week because of the blackout period ahead of this week’s FOMC meeting. 

Last week brought more mixed incoming data. While it seems increasingly likely that Q1 real GDP growth will be only modest, we continue to expect this softness to prove to be temporary. In the retail sales report for  January, the weak December reading was revised down further, suggesting Q4 consumer spending will be marked down relative to BEA’s initial estimate. That low monthly jumpoff for Q1 also bodes poorly for consumer spending growth in the current quarter. However, that report also included some good news, a  return to solid growth in January: Sales in the control group—which includes only those categories of retail sales that are direct inputs into the PCE data—rebounded sharply in January, increasing 1.1%. There was also some good news concerning equipment spending. Both orders and shipments of core capital goods surprised well to the upside, advancing 0.8% in January. Construction spending also increased more than expected in January, with public spending posting a 4.9% gain. The big disappointment last week was the industrial production report for February. Total output edged up a mere 0.1% despite gains in utilities and mining output because of another decline in manufacturing output. 

As for the price data, last week’s CPI and PPI data were soft, pointing to only a modest gain in core PCE  prices in February. That’s likely to result in the 12-month rate falling from its current level of 1.9%. The preliminary results of the Michigan Survey for March were heartening, and they will also make the FOMC’s job of crafting this week’s postmeeting statement a little more comfortable: The measure of longer-term inflation expectations rebounded to 2.5% (still low) from an uncomfortably low level of 2.3%. Another reading  of 2.3% would have strained the language in the statement that “survey-based measures of longer-term  inflation expectations are little changed.” That survey also showed a further rebound in consumer sentiment. 

Nowcasts (2019:Q1) 

Source Current One Week Ago Two Weeks Ago
Atlanta Fed GDPNow 0.4% 0.5% 0.3%
New York Fed Staff Nowcast 1.4% 1.4% 0.9%
CNBC/Moody’s Survey 1.4% 1.0% 1.4%

Recent Data 

Release Period Actual Consensus Revision to  Previous ReleasePreviously  Released Figure
Retail Sales Advance MoM Jan 0.2% 0.0% -1.6% -1.2%
Retail Sales Control Group MoM Jan 1.1% 0.6% -2.3% -1.7%
Business Inventories MoM Dec 0.6% 0.6% 0.0% -0.1%
CPI MoM Feb 0.2% 0.2% — 0.0%
CPI YoY Feb 1.5% 1.6% — 1.6%
Core CPI MoM Feb 0.1% 0.2% — 0.2%
Core CPI YoY Feb 2.1% 2.2% — 2.2%
PPI Final Demand MoM Feb 0.1% 0.2% — -0.1%
PPI Final Demand YoY Feb 1.9% 1.9% — 2.0%
Core PPI MoM Feb 0.1% 0.2% — 0.3%
Core PPI YoY Feb 2.5% 2.6% — 2.6%
Durable Goods Orders MoM Jan P 0.4% -0.4% 1.3% 1.2%
Core Capital Goods Orders MoM Jan P 0.8% 0.2% -0.9% -1.0%
Core Capital Goods Shipments MoM Jan P 0.8% -0.2% 0.1% 0.0%
Construction Spending MoM Jan 1.3% 0.5% -0.8% -0.6%
Import Price Index MoM Feb 0.6% 0.3% 0.1% -0.5%
Import Price Index YoY Feb -1.3% -1.5% -1.6% -1.7%
New Home Sales MoM Jan -6.9% 0.2% 3.8% 3.7%
Industrial Production MoM Feb 0.1% 0.4% -0.4% -0.6%
Manufacturing (SIC) Production Feb -0.4% 0.1% -0.5% -0.9%
U. of Mich. Sentiment Mar P 97.8 95.6 — 93.8
U. of Mich. 5-10 Yr Inflation Mar P 2.5% — — 2.3%

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