Industrial production and capacity utilization rise. Output by all industries (or industrial production)   rose by 0.9 percent in January to 101.1 percent of its 2002 average.  Manufacturing output rose by 1.0 percent, more than the rise in mining and utilities which each rose 0.7 percent in January.  Over the past year, manufacturing output rose 1.7 percent compared to declines in output of mining (3.3 percent) and utilities (0.6 percent).  Similarly, capacity utilization rose by 0.7 percentage points in January to 72.6 percent, principally the result of a 0.8 percentage point rise in the capacity utilization of the manufacturing industry.  These increases in industrial production and capacity utilization of the manufacturing sector are consistent with the January employment report from the Bureau of Labor Statistics showing that employment in manufacturing rose in January after declining for the previous three years.

Core inflation declines.  The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2 percent in January driven by a 2.8 percent increase in energy prices. The increase in energy prices largely reflects a 4.4 percent rise in gasoline prices and a 3.5 percent rise in natural gas prices. The index of food inflation rose 0.2 percent in January due to increases in dairy prices (2.1 percent) and fresh fruits (1.3 percent). Core inflation, which excludes energy and food prices, fell by 0.1 percent in January. In minutes from its last meeting, the Federal Open Market Committee (FOMC) noted that even though longer term inflation expectations have recently turned up, inflation is still expected to be on the lower end of the range seen in the past few years.  The Federal Reserve’s projections of economic growth as well as the Fed’s plans for unwinding lending programs will be presented to Congress this week.  While the Fed increased the discount rate, the rate it charges for emergency lending, by 25 basis points to 0.75 percent, subdued inflation makes it likely that the Fed will not change the targeted federal funds rate, which determines consumer and business loan interest rates, for an extended period of time.

New homebuilding increased in January. The Census Bureau reported that private housing starts rose by 2.8 percent to an annual rate of 591,000 in January, and were up 21.1 percent over the past twelve months.  The second consecutive twelve-month increase followed more than three years of declines. The rise in housing starts is largely the result of a 9.2 percent increase in starts of multi-unit housing structures. While starts of two-to-four unit housing structures declined by 46.2 percent, starts of five-or-more unit housing structures increased by 17.7 percent. Single-unit housing starts, which tend to be less volatile, rose by 1.5 percent in January. Since reaching a peak four years ago, single-unit housing starts have fallen by 73.5 percent. However, over the past twelve months, single-unit housing starts have risen by 35.6 percent. The modest improvement in the housing market may be partly attributable to expectations by builders that the homebuyer tax credit will spur demand for housing in the near future.