Hello, my friends!
In what was a relatively light week for economic data, the most notable numbers that emerged were those which revealed inflation remains a significant problem despite the progress made over the last three years.
Just when it seemed safe to venture back into stores and restaurants, the Labor Department announced on Friday that wholesale price pressures accelerated sharply last month.
According to the report, the headline producer price index (PPI) rose 0.5% on a monthly basis, faster than the 0.3% rate projected by economists and 0.1 percentage point faster than the pace set in December.
Year over year, the index actually slowed slightly, declining to 2.9% from 3.0% in December. However, that’s substantially higher than the 2.6% rate economists had projected and still a long way from the Federal Reserve’s long-established 2% target.
Core PPI, which strips out the volatile food and energy sectors to provide a clearer look at underlying price pressures, proved to be an even bigger disappointment. Month over month, core PPI increased 0.8%, faster than December’s 0.6% pace and MUCH faster than the 0.3% that economists were expecting. Annually, wholesale inflation surged 3.6% in January, sharply higher than both the 3.3% pace set the month prior and the 3.0% consensus estimate.
Analysts placed responsibility for the reinvigorated inflation squarely at the feet of tariffs, with Michael Reid, U.S. economist at RBS Capital Markets, telling CNN:
“Tariffs are being passed through along the supply chain. And so, our worry is that this is not the end of the pass through. We have not yet seen the full impact on consumer prices in the goods space.”
Key Metric Sends Mixed Messages on Housing Market Health
Also this week, a popular gauge of U.S. real estate prices proved to be the bearer of both good and bad news for the housing market.
Tuesday saw the release of the S&P Cotality Case-Shiller National Home Price Index for December, which revealed that while the benchmark metric rose for the fifth straight month, climbing 0.4%, it increased for calendar year 2025 at its weakest annual pace since 2011.
According to the data, the index increased at a rate of 1.3% for the year, a tenth of a percentage point slower than the 12-month growth rate through November but in line with the projections of economists.
Despite finishing 2025 with a positive year-over-year rate of growth, the meager 1.3% gain speaks directly to key challenges that have been faced by homebuyers for some time.
“Two structural forces have reshaped the market over recent years: mortgage rates and inflation,” Nicholas Godec of S&P Dow Jones Indices said in a statement. “The 30-year mortgage rate closed 2025 at 6.2%, well above the 4.8% 10-year average and a sharp contrast to the 3.9% average that prevailed from 2016 through 2020. Meanwhile, annual inflation for 2025 came in at 2.7% — modestly below the 3.1% 10-year average — but still outpaced home price appreciation by 1.4 percentage points, effectively eroding real home values for most owners.”
Indeed, when adjusted for inflation, the annual change for 2025 saw the index post a net decline, dropping 1.9%.
Chicago Manufacturing Index Reaches Highest Level in Nearly Four Years
On Friday, the Institute for Supply Management revealed that the Chicago Business Barometer…a closely watched regional gauge of U.S.manufacturing activity…rose 3.7 points this month to land at 57.7, the highest level reached by the metric in nearly four years.
The result is well above the 52.5 projected by economists and marks the second straight month that business activity in the Chicago area has expanded (values above 50 imply expansion). Prior to January, the index had come in below 50, which is contraction territory, for 25 consecutive months.
Of the five component measures that make up the overall number, four – the Production, Employment, New Orders and Supplier Deliveries Indexes – increased this month. The Production Index put in a particularly good showing, rising 9.0 points to reach its highest level in more than two years and come in above 50 for the second month in a row.
Only the Order Backlogs Index moved in the wrong direction, dropping 4.5 points to slip back into contraction territory after landing above 50 in January.
Consumer Sentiment Improves This Month Thanks to Greater Optimism About Jobs Market
Finally this week, a widely followed gauge of consumer sentiment rose more than expected this month, fueled largely by Americans’ more upbeat view of the nation’s labor market.
On Tuesday, The Conference Board reported that its proprietary Consumer Confidence Index (CCI) increased by 2.2 points in February to land at a reading of 91.2, significantly above the 87.5 projected by economists.
Notably, a larger percentage of survey respondents said this month that jobs are “plentiful” rather than “hard to get.” Unsurprisingly, this more favorable view of the job market comes on the heels of the government’s January employment report, which saw the economy add a more-than-expected 130,000 jobs and the official unemployment rate decline to 4.3% from 4.4% in December.
Also notable from this round of data is that the Expectations Index, a component measure of the headline metric that evaluates consumers’ six-month outlook for the economy, rose nearly five points to come in at 72.0. Still, despite the improvement, that key sub-index landed below the critical level of 80 for the 13th consecutive month. According to the board, Expectations Index values less than 80 imply that recession could lie ahead.
In her summary of the February results, Conference Board chief economist Dana Peterson said:
“Confidence ticked up in February after falling in January, as consumers’ pessimistic expectations for the future eased somewhat. Four of five components of the Index firmed. Nonetheless, the measure remained well below the four-year peak achieved in November 2024 (112.8).”
That’s it for now; have a marvelous weekend!
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