February 17, 2025

QuickTakes

ECONOMIC WEEK:

February 18–21

The shortened economic week ahead is an important one for our rolling recovery forecast in the manufacturing sector. January's data suggested that industrial production may be starting a cyclical rebound (chart). This week's early look at February's regional business survey data may confirm that. There will also be updates on the housing sector.

Let's discuss what's up ahead:

(1) Regional manufacturing. February's regional M-PMIs from the New York Fed (Tue) and Philly Fed (Thu) are important, albeit volatile, indicators for where the month's national M-PMI is likely to end up (chart). Their January readings suggested that the goods-producing economy is rebounding. Indeed, the ISM M-PMI entered expansion territory in January for the first time since late 2022.

We'll also be watching the two regional employment indexes (chart). Expanding manufacturing payroll employment would help offset some of the federal employee and government contractor resignations and layoffs.

While we expect the stock market will be encouraged by strong manufacturing data, an accompanying increase in inflation expectations could hurt bonds and raise yields. Tariffs might also cause manufacturers to offset higher import costs by raising their prices. So we will be watching the regional manufacturers' price indexes (chart).

(2) Composite cyclical indexes. We're expecting January's Index of Coincident Economic Indicators (CEI) to rise to a new record high. More interestingly, the Index of Leading Economic Indicators (LEI) should also turn higher after misleadingly predicting a recession since the Fed began its last round of rate hikes (chart). Another "recession indicator" bites the dust.

(3) Housing indicators. January's housing starts (Wed) likely slumped, especially given the LA fires and deep winter freeze (chart). Starts and permits broadly have been rising recently, particularly in the South.

January's existing home sales (Fri) were likely also affected by the wildfires, though may turn higher in February as displaced people find new homes. Broadly, more and more homes are hitting the market as return-to-work orders and life events have Americans giving up their low-rate mortgages (chart). So we expect home sales to pick up throughout the year. Bureaucrats fleeing DC may also spark home sales.

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