US Economic Snapshot: How Are We Doing?

In the context of a quiet week with comparatively few headlines out of Europe and U.S. government data showing relatively few surprises, many economists predicted a continuation of a positive mood, driven by recent growth in the labor market. However, a reversal of fortune or stagnation were seen as looming possibilities because of rising gasoline prices.

Some of the recent income gains, as well as savings from lower winter heating bills, may be beginning to surface in consumer spending, Troy Davig, senior U.S. economist for Barclays Capital, wrote in a note to clients. However, consumers need to confront rising gasoline prices over the next few months, so are likely to remain a bit cautious with their spending in the near term.

A similar view was expressed in what was arguably the most important economic data release for the week, the Thomson Reuters/University of Michigan Survey of Consumers, which showed consumers were still reasonably positive about their financial situation in early March, but were seeing inflation -- anticipated to run at a 4 percent rate within a year -- affecting their mood.

Here's a look at how the economy fared this week:

Consumer Sentiment. On Friday, the Michigan index on consumer sentiment fell to 74.3 from 75.3 at the end of February, brought down by a decrease in the expectations component of the index, based on how consumers foresee their financial situations six months from now. The index component fell to 68.9 from 70.3 last month, as consumers saw inflation jumping to 4 percent within a year. Meanwhile, the current conditions index increased to 84.2 from 83.0 last month.

Retail sales grew in February by 1.1 percent month-on-month -- more than some economists had expected -- and 6.5 percent year-on-year. Moreover, sale figures for both January and December were upwardly revised.

Business Sentiment. Business inventories grew more than economists predicted, driven by pipeline stockpiling at retailers. The increase came almost exclusively from growth at car dealerships, which is considered a fickle measure.

The growth in inventories was reflected in other reports measuring industrial activity as a positive for the economy. The Federal Reserve Bank of Philadelphia (Philly Fed) Business Outlook Survey's diffusion index of current activity rose to 12.5 points in March from 10.2 points in February, as it reached its highest level since last April.

Housing. The weakest area of the economy remains soft. The Mortgage Bankers Association's market composite index for the week was down 2.4 percent week-on-week, continuing the negative readings exhibited by that measure since mid-February. However, an encouraging sign came from Freddie Mac, which reported 30-year fixed-rate mortgage rates climbed to 3.92 percent, up from 3.88 percent the previous week.

Inflation. The consumer price index, or CPI, in February climbed 0.4 percent, its biggest gain since last April, and substantially above the 0.2 percent hike seen in January. Nearly all of the increase was attributable to higher energy costs. Petroleum has seen double-digit price hikes since the beginning of the year that are being reflected at the retail gas pump, where most consumers feel their effect. AAA's Daily Fuel Gauge Report on Friday noted the average price for a gallon of unleaded regular gas was $3.831, almost 32 cents more than a month ago.

Financial System Stability. Fifteen of the nation's 19 most important banks were certified by the Federal Reserve as having a sufficient capital base to withstand even a severe downturn in the economy. The announcement came at the conclusion of the annual stress tests run by the central bank. While most banks got high grades, some got low ones. Notably, Citigroup Inc., the nation's third-largest bank, failed the most severe test scenario put forth by the Fed.