Comerica Economic Weekly, February 22, 2019

February 22, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic data was mixed again this week even though recent labor data has been robust. It is tempting to say that this bimodal view of the U.S. economy probably can’t last. At some point one of the two poles dominates. Either the labor data deteriorates as business conditions degrade, or the labor data is so strong that other data is either irrelevant or recovers (in the case of consumer and business confidence). However, if we resist the temptation to jump to conclusions, there is another possibility. That is that the U.S. economy muddles through the year, beset and preoccupied by downside risks, but continues to grow through the year, supported by a strong household sector. Our forecast for the year follows that middle ground. We will see. 

The Conference Board’s Leading Economic Index for the U.S. eased for the second time in the last four months in January, off by 0.1 percent. The Coincident Index was barely positive in January, up by 0.1 percent. The Lagging Index was still strong, showing a 0.5 percent gain.

New orders for durable goods increased by 1.2 percent in December, lifted by commercial aircraft orders. Most other categories were positive, but orders for computers and communications equipment fell noticeably. As a result, core durable goods orders, nondefense capital goods excluding aircraft, dipped by 0.7 percent in December after falling by 1.0 percent in November.

Existing home sales were down again in January, falling for the third consecutive month and extending an ugly trend that began in early 2017. Sales dipped by 1.2 percent to a 4,940,000 unit annual rate. This is the weakest sales rate since November 2015. Lower mortgage rates may be a positive factor in February.

Builder confidence increased in February according to the National Association of Home Builders. Lower mortgage rates were cited as a positive factor.

Mortgages apps increased for the week ending February 15 as refi apps gained 6.4 percent. Purchase apps were up by 1.7 percent, reversing a four-week slide. On a four-week moving average basis, refi apps are down 16.1 percent from a year ago, while purchase apps are up by 0.5 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage ticked up to 4.66 percent. 

Initial claims for unemployment insurance fell by 23,000 for the week ending February 16, to hit 216,000.  Initial claims data has been choppy since last November and the trend still looks like it is up slightly since the lows from last September. Continuing claims fell by 55,000 for the week ending February 9, to hit 1,725,000.

In addition to the economic data releases, the Federal Reserve released the minutes of the January 29/30 FOMC meeting. Even though there was no rate hike announced at the meeting, as was widely expected, it was an important meeting. The Fed changed their tone about future rate hikes, using the words “patient” and “flexible”. The Fed also concluded that they are sticking with the current mechanism for controlling the fed funds rate. This conclusion allows them to establish the goal for balance sheet reduction. The Fed will likely wind down balance sheet reduction by the end of this year, reaching an asset level of about $3.5 trillion dollars. Their portfolio will be dominated by Treasury bonds, but they may retain some mortgage backed securities as well. We expect balance sheet maneuvers to remain in the Fed’s tool bag.

For a PDF version of this report, click here:  Comerica Economic Weekly, February 22, 2019

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations.  The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team.  We are not offering or soliciting any transaction based on this information.  We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation.  Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed.  Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.  

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Jan 2019 Leading Indicators, Existing Home Sales, Dec Durable Goods

February 21, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Government Shutdown a Consistent Theme in Soft January Data

*     The Conference Board’s Leading Economic Index for January decreased by 0.1 percent.
*     Existing Homes Sales fell by 1.2 percent in January.
*     New Orders for Durable Goods increased by 1.2 percent in December.
*     Initial Claims for Unemployment Insurance fell by 23,000 for the week ending Feb. 16, to hit 216,000.

The Conference Board’s Leading Economic Index for the U.S. eased for the second time in the last four months in January, off by 0.1 percent. It is fair to say that the monthly change in the Leading Index has centered near zero since last October, and that is not a good thing. The Coincident Index was barely positive in January, up by 0.1 percent. The Lagging Index was still strong, showing a 0.5 percent gain. The Leading Index is still being affected by data delays due to the partial federal government shutdown. This requires the Conference Board to make estimates for manufacturers’ orders and building permits. We have no reason to think that the estimates are biased in either direction, so we expect to see no significant revisions when everyone gets caught back up.

Existing home sales were down again in January, falling for the third consecutive month and extending an ugly trend that began in early 2017. Sales dipped by 1.2 percent to a 4,940,000 unit annual rate. This is the weakest sales rate since November 2015, which was a one-month swoon. The weak January sales rate really harkens back to mid-2014. The partial government shutdown and the associated dips in consumer and business confidence were likely negative factors in January. The declining mortgage rates may be an offsetting positive factor in February.

New orders for durables goods increased by 1.2 percent in December, lifted by commercial aircraft orders. Orders for commercial aircraft are very lumpy, and they jumped by 28.4 percent in December. Orders for defense aircraft are also volatile, and they fell by 30.5 percent for the month. Most other categories were positive, but orders for computers and communications equipment fell noticeably. As a result, core durable goods orders, nondefense capital goods excluding aircraft, dipped by 0.7 percent in December after falling by 1.0 percent in November. This leading indicator for the manufacturing sector was soft at the end of 2018 but still within norms. We will not say that this is a cooling trend, but it bears watching in the months ahead.

Initial claims for unemployment insurance fell by 23,000 for the week ending February 16, to hit 216,000. Initial claims data has been choppy since last November and the trend still looks like it is up slightly since the lows from last September. The partial federal government shutdown from late December through the end of January added to the chop. Continuing claims fell by 55,000 for the week ending February 9, to hit 1,725,000.

Market Reaction: U.S. equity markets opened with losses. The 10-year Treasury bond yield is up to 2.69 percent. NYMEX crude oil is down to $56.99/barrel. Natural gas futures are up to $2.70/mmbtu.

For a PDF version of this report, click here: Jan 2019 Leading Indicators

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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Comerica Economic Weekly, February 15, 2019

February 15, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic data was generally soft this week. The pessimistic interpretation is that the U.S. federal government shut-down from late December through January coincided with reports of cooler global growth, hitting both current confidence and expectations of future demand at the same time.  An optimistic view of the economy is that pent-up demand from December and January will get spent out in February and March, and breakthroughs with “The Wall” and with China trade negotiations will provide momentum heading into spring.

We will split the difference. We expect some, but not all,  of the pent-up demand from the shutdown to be spent out later. We also think that the Trump Administration will emphasize positives in the weeks ahead. However, the freight train of global economic growth takes a long time to slow down, and a long time to speed up. We think that we are still in the slowing process.

China is unleashing more stimulus to counter the drag from weaker trade. Europe does not have the ability to respond as quickly or as forcefully to cooler growth there. In the U.S. monetary tightening is on hold, but the fiscal stimulus from tax reform is fading and a meaningful infrastructure spending package remains elusive.

U.S. retail sales were weaker than expected in December, falling by 1.2 percent. Lower gasoline prices were a factor, but sales fell in several other categories. Auto sales were a bright spot for the month, with the nominal value up by 1.0 percent. Excluding autos and service stations, monthly retail sales fell by 1.4 percent.

Industrial production fell by 0.6 percent in January as manufacturing output decreased by 0.9 percent. Light vehicle production fell from a 12.27 million unit rate in December, to 10.6 million in January. Weather may be partially to blame for lower vehicle production, but dealer inventories are reported to be too high.

Initial claims for unemployment insurance increased by 4,000 for the week ending February 9, to hit 239,000. The trend for initial claims has been choppy but up slightly since the September low. Continuing claims increased by 37,000 for the week ending February 2, to hit 1,773,000. The trend there is also up slightly.

The Producer Price Index for Final Demand fell marginally, by 0.1 percent, in January. Energy prices were down by 3.8 percent at the producer level. Wholesale food prices were down by 1.7 percent for the month. Excluding food, energy and trade, the core PPI for Final Demand was up by 0.2 percent in January, supported by gains in prices for services. Over the 12 months ending in January, the PPI for Final Demand was up by 2.0 percent, while core PPI was up by 2.5 percent.

The headline Consumer Price Index for January was unchanged from December.

OPEC announced crude oil production cuts that put some upward pressure on crude oil prices. However, tighter OPEC supply in 2019 could be countered by increased U.S. oil production and cooler global demand.

The National Federation of Independent Business’s Small Business Optimism Index fell in January, to 101.2, the lowest reading since the fall of 2016. This is the fifth consecutive monthly decline in the NFIB index.

Fed Governor Lael Brainard said yesterday the she expected the Fed to conclude balance sheet runoff by the end of this year.

Job openings in December hit an all-time high.

For a PDF version of this report, click here:  Comerica Economic Weekly, February 15, 2019

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations.  The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team.  We are not offering or soliciting any transaction based on this information.  We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation.  Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed.  Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.  

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December 2018 Retail Sales and Producer Prices, Feb. UI Claims

February 14, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Retail Sales Slump at Year End

*    Retail Sales decreased by 1.2 percent in December, weighed down by low gasoline prices.
*    The Producer Price Index for Final Demand dipped by 0.1 percent in January.
*    Initial Claims for Unemployment Insurance increased by 4,000, to hit 239,000 for the week ending Feb. 9.

Headline retail sales were weaker than expected in December, falling by 1.2 percent. Lower gasoline prices were a factor, but sales fell in other categories besides just service stations. Service station sales dropped by a hefty 5.1 percent in December as gasoline prices fell to near $2 per gallon in some areas. Auto sales were a bright spot for the month. Unit auto sales increased from a 17.4 million unit rate in November, to 17.6 in December. The nominal value of retail auto and parts sales for December was up by 1.0 percent. Excluding autos and service stations, retail sales dropped by 1.4 percent in December, showing broad-based weakness that may have been related to the partial federal government shutdown that began on December 22. Consumer confidence fell sharply in December, also likely impacted by the government shutdown. Furniture stores sales were down by 1.3 percent in December. Health and personal care store sales dropped by 2.0 percent. General merchandise store sales fell by 0.9 percent. January may have been be another soft month for retail sales given the record-setting length of the government shutdown and severe weather in many parts of the country. Consumer confidence continued to fall through January.

The Producer Price Index for Final Demand fell marginally, by 0.1 percent, in January. Energy prices were down by 3.8 percent at the producer level. Wholesale food prices were down by 1.7 percent for the month. Excluding food, energy and trade, the core PPI for Final Demand was up by 0.2 percent in January, supported by gains in prices for services. Over the 12 months ending in January, the PPI for Final Demand was up by 2.0 percent, while core PPI was up by 2.6 percent. Overall producer prices are being held in check by food and energy goods, but prices for services have shown stronger gains from September through January. We expect energy prices to shift from a drag in January, to a push in February.
Initial claims for unemployment insurance increased by 4,000 for the week ending February 9, to hit 239,000. The trend for initial claims has been choppy but up slightly since the September low. Continuing claims increased by 37,000 for the week ending February 2, to hit 1,773,000. This is still a very low number, but it is also trending up slightly.

Market Reaction: Equity markets opened with losses. The 10-year Treasury yield is down to 2.64 percent. NYMEX crude oil is down to $53.51/barrel. Natural gas futures are up to $2.63/mmbtu.

For a PDF version of this report, click here: December 2018 Retail Sales and Producer Prices, Feb. UI Claims

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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January Consumer Price Index, February Mortgage Apps

February 13, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Consumer Prices Stay Cool, Despite Warmer Headlines

*     The Consumer Price Index for January was unchanged from December.
*     Mortgage Applications fell by 3.7 percent for the week ending February 8.

The headline Consumer Price Index for January was unchanged from December. We are seeing some anecdotal reports of companies raising prices for food and other consumer goods. The reports of higher prices for consumer goods may show up in the CPI data later this spring, but through January, consumer prices were well contained. Also, OPEC just announced crude oil production cuts that put some upward pressure on crude oil prices. However, tighter OPEC supply in 2019 could be countered by increased U.S. oil production. Also, a cooler global economy is pulling crude oil demand estimates down for 2019. Consumer food prices in January were up by 0.2 percent. Energy was an offset, falling by 3.1 percent for the month. Commodities other than food and energy gained 0.4 percent in January. Excluding food and energy, core CPI was up by 0.2 percent for the fifth consecutive month in January, Over the 12 months ending in January, the headline CPI was up by 1.6 percent, while core CPI was up by 2.2 percent. For now, consumer inflation is well contained, but there is potential for warmer readings later this spring.

The composite mortgage application index fell for the fourth consecutive week in early February, down 3.7 percent. Most of the pull is coming from purchase apps, which were down 6.1 percent for the week. Refi apps lost just 0.1 percent for the week. Bad weather may be a factor, but housing market trends have been soft since last summer. On a four-week moving average basis, purchase apps are down 0.2 percent from a year ago. Refi apps are down 17.3 percent from a year ago, consistent with rising mortgage rates. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage eased to 4.65 percent for the week ending February 8, down noticeably from 4.86 percent in mid-December. We expect housing metrics to remain soft this year, providing little push to the U.S. economy.

Market Reaction: U.S. equity markets opened with gains. The 10-Year Treasury bond yield is up to 2.70 percent. NYMEX crude oil is up to $54.14/barrel. Natural gas futures are down to $2.59/mmbtu.

For a PDF version of this report, click here: January Consumer Price Index, February Mortgage Apps

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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January NFIB Small Biz Survey, December JOLTS

February 12, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Small Businesses Optimism is Slipping

*     The January NFIB Survey showed that Small Business Optimism declined in January.
*     The Job Opening and Labor Turnover Survey for December showed an all-time high for job openings.

The National Federation of Independent Business’s Small Business Optimism Index fell in January, to a level of 101.2, the lowest reading since the fall of 2016. This is the fifth consecutive monthly decline in the NFIB index. The index remains elevated compared to the pre-Trump era, but it is clearly down from peak Trump. January was a very contentious month in Washington with the longest-ever partial federal government shutdown and uncertainty about the U.S./China trade relationship. Today it looks like a deal has been struck to avoid a repeat of the government shutdown in February. That will be a positive for business optimism. Also, it appears that the U.S. and China are inching closer to a trade deal, but an actual agreement remains to be seen. With those two factors less negative in February, we expect to see better optimism readings amongst small businesses for this month. Cooler global economic data will still be a factor in the February survey. Hiring indicators remain strong amongst small businesses, but labor compensation is increasing. Credit conditions are good, but interest rates have trended up. Capital spending plans for the next three months continued to ease, adding to our concern that business fixed investment in 2019 may be weak.

The Job Openings and Labor Turnover Survey for December showed an all-time high of 7.3 million job openings. The job openings rate increased to a strong 4.7 percent. In December 5.9 million workers were hired (gross, not net as reported in the monthly payroll employment series). The hiring rate stayed high at 3.9 percent. The quits rate stayed at a high 2.3 percent and is an indication of workers’ strong confidence in securing new employment. Today’s JOLTS data confirms very strong labor market conditions through the end of 2018.

Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is up to 2.68 percent. NYMEX crude oil is up to $53.53/barrel. Natural gas futures are up to $2.65/mmbtu.

For a PDF version of this report, click here: January NFIB Small Biz Survey, December JOLTS

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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February 2019 Texas Economic Outlook

February 11, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Texas Benefits from Stabilizing Energy Market

2019 will be another good year for the Texas economy characterized by organic growth, ongoing in-migration of both businesses and people, and stability in energy markets. 2019 state real GDP growth is forecasted to be a little stronger than 2018, however, the pattern is different. State GDP growth in 2018 got off to a relatively modest start in the first quarter and then improved rapidly as oil prices increased through the first nine months of the year. Oil prices reset in 2018Q4 and some energy companies reduced capital spending plans for 2019. In 2019 we expect state economic growth to moderate in the second half of the year as U.S. and global conditions cool. We look for oil markets to gradually tighten this year, but a cooler global economy will keep demand growth in check pushing the year-end price for WTI up to about $60 per barrel. At that price, production will remain strong and pipeline and other energy infrastructure projects will continue to support state economic growth. Non-energy businesses will continue to find Texas a favorable location. Apple announced that they will build a new $1 billion campus in North Austin, adding 5,000 employees to the 6,200 that they already employ in Austin. Dallas will also continue to expand as an IT hub, benefitting from being a large business-friendly location. Houston endured the back-to-back blows of a collapsing energy market in 2015 and a devasting hurricane in 2017 to post renewed strong job growth in 2018, averaging 9,300 net new jobs per month for the year. We expect job growth in Houston to ease in 2019 but remain a significant positive force for the state.

For a PDF version of this report, click here: February 2019 Texas Economic Outlook

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.
 

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February 2019 Michigan Economic Outlook

February 11, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Headwinds Ahead for Michigan’s Auto Sector

We expect the Michigan economy to continue to grow through 2019, but we also expect the pace of growth to slow significantly as the year progresses. Michigan’s important auto industry and related durable goods manufacturers are facing increasing headwinds. The global economy is decelerating in early 2019. Economic data from China has been weak and is consistent with cooler GDP growth in 2019. China is an important market for GM, which has reported weaker profits due to softer sales in China. GM has initiated its North American restructuring plan and will eliminate about 4,000 jobs and close 5 plants this year. Europe is also showing signs of cooler economic growth. Ford has announced a restructuring plan for their European division. A downshift in the global economy will be a factor in cooler U.S. economic growth in 2019, and by extension, weaker U.S. vehicle sales. Also, accelerated depreciation due to tax reform may have front-loaded commercial vehicle demand in 2018, thereby reducing demand in 2019. We expect to see U.S. light vehicle sales of about 16.6 million units in 2019, down from 17.2 million units in 2018. Dealer inventory was up by 3 percent at the end of 2018, compared with a year earlier. Inventory expansion could turn into a weight on production if sales drop off this year. While finances are in good shape for most U.S. households, consumer confidence fell in January as the longest federal government shutdown in history dragged on. Good news could come in the form of a trade deal with China that would at least remove the threat of increasing tariffs, and possibly lead to a reduction in trade tariffs. With cooler economic growth and higher mortgage rates, we expect Michigan’s housing market to remain subdued in 2019.

For a PDF version of this report, click here: February 2019 Michigan Economic Outlook

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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February 2019 Florida Economic Outlook

February 11, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

The Florida Economy’s Virtuous Cycle Continues

The Florida economy maintained positive economic momentum heading into early 2019. Florida added 231,200 jobs in 2018, up from the 163,900 net new jobs in 2017. In 2019 we expect to see another 230,000 net new jobs. The influx of people moving to the state following Hurricane Maria was a boost to Florida’s labor market in 2018. It increased both the total number of job-seekers and demand for goods and services last year. In Florida, people are attracting jobs, which are attracting more people in a virtuous cycle. We look for net migration to remain positive as workers and retirees continue to flock to the state this year, driving population growth. Florida’s strong population growth also spurred demand for housing in 2018. Single-family existing home sales were up 2.2 percent for the year, according to Florida Realtors. The inventory of existing single-family homes for sale remained tight, supporting an 8.6 percent gain in Florida existing home prices for the year ending in 2018Q3. We expect Florida home price growth to moderate in 2019 as builders supply more inventory this year. The state’s tourism industry has also seen strong growth. Total domestic visitors to Florida was up 7.7 percent year to date through 2018Q3, according to Visit Florida. PortMiami set a record with 5.4 million cruise passengers travelling through its port in 2018. Lower consumer confidence is a downside risk for Florida tourism in 2019. State total trade, the sum of total exports and imports, also improved last year, reaching $126 billion by November 2018. A risk to state trade this year is uncertainty surrounding U.S./ China trade negotiations. We look for ongoing strong population growth to keep the Florida economy on track in 2019 despite U.S. and global headwinds.

For a PDF version of this report, click here: February 2019 FL Economic Outlook

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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February 2019 CA Economic Outlook

February 11, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

California’s Economy to Cool in 2019

We expect the California economy to continue to expand in the near term. That said, downside risks to California’s economy have increased and the list of possible accelerators for the California economy has diminished. One item that remains on the plus side for California would be a resolution to the U.S./China trade war which would boost demand for California exports plus bolster overall shipping volumes through California ports. Job growth for the state is moderating. California added 284,300 jobs in 2018, the slowest pace of job growth since 2011. We expect the state to add about 276,000 jobs over the year ending in 2019Q4. Meanwhile, the state’s unemployment rate is near a historical low at 4.2 percent in December, and is expected to decline through 2019. With labor markets this tight, it is hard to see where more workers would come from. The most recent data from the Census Bureau is indicating that California is experiencing a net outflow of people even with a historically tight labor market. Low housing affordability and high business costs are persistent motivators for out-migration. Recent declines in mortgage rates and moderating house price growth across California’s major metropolitan areas will help affordability in the short term, but will not be enough to alter the state’s high cost of living. The rate of house price appreciation has moderated significantly in the second half of 2018 in California’s key cities. According to the Case-Shiller data, San Francisco house prices were up 11.1 percent in March 2018, over the previous year. In November the yearly gain had decreased to 5.6 percent.

For a PDF version of this report, click here: February 2019 CA Economic Outlook

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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February 2019 AZ Economic Outlook

February 11, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Arizona Economy to Remain Strong in 2019

Arizona’s economy is expected to improve through 2019. This outlook is largely supported by the state’s continued population and job growth. Net migration into Arizona is expected to continue at a moderate pace. The state’s comparative affordability is a significant draw for businesses and consumers alike, especially when compared with neighboring high-cost California. Although we expect Arizona’s momentum to cool in time, especially as real estate conditions tighten, we forecast Arizona’s real gross domestic product growth to remain above the U.S. average through 2019 and well into 2020. Mid-year population estimates recently released by the Census Bureau show Arizona's headcount at just under 7.2 million as of July 1, 2018, reflecting 122,770 new residents, or a 1.7 percent year-over-year increase. Only Texas, California, and Florida, the country’s three most populous states, have added more people over the same period. While economic growth in Arizona has been strong in recent years, it has not come without its share of growing pains, particularly with regard to the state’s strained educational system and infrastructure. To accommodate the influx of new arrivals to the state, Arizona has committed to improving many of its roadways, including nearly $200 million over the next three years to significantly expand Interstate 17, the Phoenix metro area’s primary north-south freeway. Along with the state’s improving housing market, infrastructure projects like these will contribute to another year of strong construction activity and employment in Arizona, and add to overall job growth.

For a PDF version of this report, click here: February 2019 AZ Economic Outlook

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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Comerica Economic Weekly, February 8, 2019

February 8, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

This week we saw further confirmation of a global economic slowdown. U.S. data was mixed. Federal agencies scrambled to get their data release calendars back on track. The Bureau of Economic Analysis announced that we will get an estimate of 2018Q4 U.S. GDP on February 28. Because of the delay caused by the government shutdown the BEA will not issue a first estimate of Q4 GDP. The GDP data released on February 28 will effectively be the second estimate of Q4 GDP. 

Conditions are changing for durable goods manufacturers worldwide. GM reported that their profits have been hurt by weaker-than-expected auto sales in China. U.S. retail automobile inventories are building again, up 3 percent at year end over the previous 12 months. New orders for German manufacturing were down in December. The European Union reduced their forecast for economic growth in 2019. 

For now, evidence for a cooler global economy is concentrated in the manufacturing sector. However, there is some early indication that the service sector is feeling the drag. The IHS Markit Global Services PMI for January eased again, to a still positive 52.6 in January, a 28-month low for that index.

The Census Bureau released U.S. international trade data for November. Trade numbers remain volatile, in part due to new U.S. imports tariffs and countermeasures by trading partners. Beyond the trade wars, the strong dollar and changing global demand are swinging the numbers. In November, U.S. exports decreased by $1.3 billion while imports fell by $7.7 billion. This caused the trade gap to narrow to -$49.3 billion. For now, it looks like trade will be a net positive for Q4 GDP, but that could change if December trade data takes a U-turn. 

The ISM Non-Manufacturing Index for January eased from a strong 58.0 in December, to a more moderate 56.7. The production, new orders and employment sub-indexes all remained comfortably above the neutral 50 mark. The employment sub-index increased from 56.6 in December to 57.8 in January, consistent with the robust payroll jobs numbers for January. Several businesses commented that the government shutdown was a cause for concern, if not an outright drag.

Initial claims for unemployment insurance were volatile through the government shutdown. For the week ending February 2, initial claims fell by 19,000 to hit 234,000. The four-week moving average for initial claims remains slightly elevated from the September 2018 lows. Continuing claims for the week ending January 25 fell by 42,000 to hit 1,736,000. 

The January 2019 Senior Loan Officer Opinion Survey by the Federal Reserve shows a tightening of bank lending standards for commercial real estate. Standards for commercial and industrial loans were unchanged, as were standards for consumer loans and residential real estate loans. Demand for most types of loans was expected to weaken, with the exception of credit card loans.

The Federal Reserve announced that Chairman Jay Powell will deliver his semi-annual congressional testimony beginning on February 27. For now, the fed is in “pause” mode. Former Fed Chair Janet Yellen said this week that the Fed’s next interest rate move could be down. We expect the March dot plot to shift down, showing reduced expectations for further rate hikes. 

For a PDF version of this report, click here:  Comerica Economic Weekly, February 8, 2019

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations.  The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team.  We are not offering or soliciting any transaction based on this information.  We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation.  Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed.  Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.  

 

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February 2019 U.S. Economic Outlook

February 7, 2019 by Robert A. Dye, Ph. D., Daniel Sanabria

A Downshift in the Global Economy Adds Risk 

There is never a good time, but the recently ended partial federal government shutdown came at a bad time. As the global economy appeared to downshift, the shutdown put sand in the gears of the U.S. economy, and resulted in a partial economic data blackout at a critical time. The Census Bureau and the Bureau of Economic Analysis were closed through January, leaving a big gap in economic reporting. Their reopening is shedding some light on the U.S. economy, but the lighting may be inconsistent in the near term as data procedures and schedules get reassembled.

Inconsistencies in data can be seen in the January employment report from the Bureau of Labor Statistics, which was not shut down but was still impacted by the shutdown. The BLS jobs report is based on two separate surveys. The establishment survey shows employment by place of work and gives us data on employment in specific industries. The household survey shows employment by place of residence and is the source for the unemployment rate. The establishment survey showed that January payrolls increased by a very strong 304,000. December payrolls, which were previously reported as up by 312,000, were slashed to now show a gain of 222,000. Furloughed federal workers were counted as employed in the establishment survey in January because they will eventually get paid. The household survey showed a major drop of 251,000 jobs in January. Furloughed government workers were counted as not employed in the household survey. As a result, the unemployment rate increased from 3.9 percent in December, to 4.0 percent in January.

The bulk of U.S. labor-related data points to ongoing strong hiring through January. However, business and consumer confidence fell at year end 2018, and some marquis companies announced that they were beginning to lay off significant numbers of workers. We believe the hiring story is more nuanced than “full speed ahead.” We expect the blistering pace of hiring through December and January to slow down in the months ahead, reflecting more cautious behavior from U.S. businesses as U.S. and global conditions cool in early 2019. 

While U.S. economic data has been inconsistent, recent data from China has been consistent in a bad way, showing slower growth in the world’s largest single economy. The Caixin Composite PMI for China for January dropped to a barely positive 50.9, with a big drag coming from the manufacturing sector. The Caixin China Manufacturing PMI dropped to a contractionary 48.3 in January. Likewise, the IHS Markit Eurozone Manufacturing PMI fell to a barely positive 50.5 in January, showing that the world’s largest trading bloc is losing momentum. Weaker economic growth is putting pressure on tax collections in Germany according to a recent Finance Ministry report. Japan, the world’s third largest economy, is also losing momentum. Global trade is clearly cooling, crimped by the U.S.-China trade war.

In addition to pressure from the U.S.-China trade war, the global economy is feeling pressure from the Federal Reserve due to higher U.S. interest rates. The Fed has responded to increased downside economic risk by emphasizing “patience” in recent announcements, speeches and press conferences. At the conclusion of the Federal Open Market Committee meeting over January 29/30, Fed Chairman Jay Powell sounded like he was in no hurry to continue raising rates. We expect the next dot plot, to be released by the Fed on March 20, to show reduced expectations for rate hikes, compared to the dot plot from December 19. In our February U.S. forecast, we have only one 25 basis point increase in the fed funds rate this year, coming at mid-year. We believe that the Fed is already very close to the top of its interest rate cycle for this expansion. Also, we expect the Fed to gradually wind down asset runoff this year, settling at a balance sheet of about $3.5 trillion.

For a PDF Version of this report, please click here: February 2019 U.S. Economic Outlook

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

 

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January 2019 ISM Non-Manufacturing Index

February 5, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. Service Sector Is Expanding, but More Slowly

•The ISM Non-Manufacturing Index for January eased to a moderate 56.7 percent.
•The IHS Markit U.S. Services PMI for January dipped to 54.2, indicating ongoing expansion.

Today we received two views in the state of the U.S. service sector. The ISM Non-Manufacturing Index for January eased from a strong 58.0 in December, to a more moderate 56.7. The production, new orders and employment sub-indexes all remained comfortably above the neutral 50 mark. The employment sub-index increased from 56.6 in December to 57.8 in January, consistent with the robust payroll jobs numbers for January. The only sub-index out of ten to show contraction was the inventories index, which declined from 51.5 in December, to 49.0 in January. Labor was seen as getting more expensive and in short supply in January. Amongst industries, winners and losers were about evenly split. Nine industries reported growth in January, including transportation & warehousing, healthcare & social assistance and mining. Eight industries reported a decrease in activity in January, including agriculture, forestry and fishing & hunting. Anecdotal comments were mixed. A comment from the construction industry said, “Business has slowed well below expectations…”. Several businesses commented that the government shutdown was a cause for concern, if not an outright drag.

The IHS Markit U.S. Services PMI fell slightly from 54.4 in December to 54.2 in January. Like the ISM index, the IHS index is also past its recent peak and trending down, but it remains in positive territory indicating ongoing, but slower expansion. According to IHS, their January index is consistent with about 2.5 percent real GDP growth in 2019Q1. In our February U.S. Economic Outlook we show 2.5 percent real GDP growth in Q1, cooling slightly in the following quarters. 

Market Reaction: U.S. equity markets open with gains. The yield on 10-Year Treasury bonds is down to 2.70 percent. NYMEX crude oil is down to $54.29/barrel. Natural gas futures are up to $2.69/mmbtu.

For a PDF version of this report, click here:  January 2019 ISM Non-Manufacturing Index

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations.  The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team.  We are not offering or soliciting any transaction based on this information.  We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation.  Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed.  Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.  

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Comerica Economic Weekly, February 1, 2019

February 1, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

It was an interesting week in the econo-sphere punctuated by a challenging January jobs report and an apparent shift in the Federal Reserve’s posture.

The official Bureau of Labor Statistics employment report for the month of January was especially muddy, due to a combination of factors that challenges all but the broadest conclusions. The establishment survey showed that January payrolls increased by a very strong 304,000.  December payrolls, which were previously reported as up by 312,000, were revised down significantly, to now show a gain of 222,000. According to the BLS, furloughed federal workers were counted as employed in January because they will eventually get paid. The average workweek was unchanged at 34.5 hours. Average hourly earnings increased by 3 cents for a 3.2 percent year-over-year gain. Even though furloughed federal government workers were counted as employed in the establishment survey, they were counted as unemployed in the household survey which gives us the unemployment rate. The household survey of employment dropped by 251,000 jobs in January, causing the unemployment rate to tick up to 4.0 percent. Beyond the inconsistent interpretation of furloughed government workers, there were other mechanical issues with the January employment report that should caution against a strict analysis.

The ISM Manufacturing Index increased from 54.3 in December to 56.6 in January, showing improving conditions for the manufacturing sector. New orders and production both increased, while the employment index dropped slightly. Anecdotal comments were generally   positive. Fourteen out of 18 industries reported growth.

According to The Conference Board, U.S. consumer confidence fell again in January after a noticeable decline in December. The index now stands at a still-positive 120.2. 

New home sales rebounded in November, up strongly, by 16.9 percent to a 657,000 unit annual rate. This was the strongest sales rate since last March. 

The Case-Shiller U.S. National House Price Index for November showed a 5.2 percent gain over the previous year. Most of the 20 key cities showed month-over month price gains, with the exceptions of Cleveland, San Francisco and Seattle.

Mortgage apps eased through the second half of January. For the week ending January 25, purchase apps fell by 2.3 percent while refi apps gave up 5.5 percent. On a four-week moving average basis, refis are down 16.7 percent from a year ago. Purchase apps are up 6 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage ticked up slightly to 4.76 percent in late January.

The Federal Reserve left the fed funds rate range unchanged at 2.25-2.50 percent at the FOMC meeting over January 29/30. Fed Chairman Jay Powell emphasized the Fed’s patient posture and sounded more dovish than he did last fall. Powell implied that the Fed’s balance sheet run-off program may end this year, leaving the Fed’s balance in the neighborhood of $3.5 trillion dollars. Powell also said that the Fed has decided to leave the mechanisms for controlling the fed funds rate unchanged. Powell also acknowledged that balance sheet expansion remains in the Fed’s arsenal for fighting a future economic slowdown. Financial markets responded positively to the news.

For a PDF version of this report, click here:  Comerica Economic Weekly, February 1, 2019

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations.  The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team.  We are not offering or soliciting any transaction based on this information.  We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation.  Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed.  Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.   

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January 2019 U.S. Employment

February 1, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

A Very Muddy Jobs Report Should be Discounted

*     Payroll Employment increased by 304,000 jobs in January, well above expectations.
*     The Unemployment Rate for January increased to 4.0 percent.
*     Average Hourly Earnings increased by 3 cents in January and were up 3.2 percent over the year.
*     The Average Workweek in January was unchanged at 34.5 hours.

The official Bureau of Labor Statistics employment report for the month of January was especially muddy, due to a combination of factors that challenges all but the broadest conclusions. The establishment survey showed that January payrolls increased by a very strong 304,000. December payrolls, which were previously reported as up by 312,000, were revised down significantly, to now show a gain of 222,000. According to the BLS, furloughed federal workers were counted as employed in January because they will eventually get paid, an interesting interpretation. The average workweek was unchanged at 34.5 hours. Average hourly earnings increased by 3 cents for a 3.2 percent year-over-year gain.

Even though furloughed federal government workers were counted as employed in the establishment survey, they were counted as unemployed in the household survey which gives us the unemployment rate. The household survey of employment dropped by 251,000 jobs in January, causing the unemployment rate to tick up to 4.0 percent.

Along with normal seasonality and weather effects, and the inconsistent treatment of the federal government shutdown, the BLS also re-benchmarked the establishment survey and revised their seasonal adjustment factors. In short, there is a lot going on with the employment report that challenges any conclusions drawn from a one-month analysis. Some of the industry numbers in the establishment survey are eye-catching. The best we can do with this report is to say that moderate-to strong hiring probably continued through January. Hopefully, trends will become clear as the data machinery normalizes this spring.

The establishment survey indicated that jobs gains were broad-based in January. Mining and logging industries gained 7,000 workers despite lower oil prices. Construction employment swelled by 52,000 workers even though residential construction has been soft. Manufacturing employment increased by 13,000 workers, led by gains in transportation equipment. Wholesale trade added 4,700 jobs. Retail trade employment was up by 20,800 jobs. Transportation and warehousing was very strong, adding 26,600 net new jobs. Utilities dropped 500 workers and Information companies reduced their numbers by 4,000. However, financial services added 13,000 jobs. Professional and business services gained 30,000 while education and healthcare employment increased by 55,000 net new jobs. Leisure and hospitality industries added a huge 74,000 jobs in January, according to the BLS. Government employment increased by 8,000 workers despite the partial federal government shutdown.

Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is up to 2.65 percent. NYMEX crude oil is up to $54.16/barrel. Natural gas futures are down to $2.78/mmbtu.

For a PDF version of this report, click here: January 2019 U.S. Employment

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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Comerica Bank's Texas Index Climbs

January 31, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s Texas Economic Activity Index increased by 0.4 percent in November to 136.5. November’s index reading is 41 points, or 43 percent, above the index cyclical low of 95.5. The index averaged 128.5 points for all of 2017, 4.2 points above the average for 2016. October’s revised index reading was 135.9.

The Comerica Bank Texas Economic Activity Index increased in November for the third consecutive month. Some state-level data was not available this month due to the partial federal government shutdown. We included our own estimates for housing starts and for total state trade for the month of November so that we could publish our headline index this month. Data for the other seven index components was collected and processed normally. In November eight out of nine index components were positive. They were nonfarm payrolls, unemployment insurance claims (inverted), house prices, industrial electricity demand, rig count, total trade, hotel occupancy and sales tax revenues. Housing starts declined in November. We expect that the dip in crude oil prices through 2018Q4 will result in some drag on the Texas economy, but not as much drag as we saw in 2015, when our Texas Index declined through the year. Drillers and producers have scaled back capital spending plans for 2019 and employment growth in the oil patch looks like it is slowing. A cooler U.S. and global economy this year will have an impact on Texas beyond the drag from lower oil prices. The now-ended partial federal government shutdown will not have a significant impact on the Texas Index for January. However, a noticeable drop in Consumer Confidence through December and January is bad news for the two auto production plants in Texas.

For a PDF version of this report, click here: Comerica Bank’s Texas Index Climbs

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.
 

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Comerica Bank's Michigan Index Ticks Down

January 31, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s Michigan Economic Activity Index decreased by 0.2 percent in November to a level of 118.7. November’s reading is 21 points, or 21 percent, above the index cyclical low of 97.9. The index averaged 118.2 points for all of 2017, one point above the index average for 2016. October’s index reading was 118.9.

Comerica Bank’s Michigan Economic Activity Index decreased in November. Since last June, our Michigan Index has increased in just one month, October. Over the 12 months ending in November our Michigan Index is up by only 0.3 percent. Both those measures show that the state economy lost momentum through the second half of 2018. Some state-level data was not available this month due to the partial federal government shutdown. We included our own estimates for housing starts and for total state trade for the month of November so that we could publish our headline index this month. Data for the other seven index components was collected and processed normally. In November, three out of nine index components were positive. They were nonfarm payrolls, housing starts and house prices. Negative components were unemployment insurance claims (inverted), industrial electricity demand, light vehicle production, total state trade, hotel occupancy and sales tax revenues. A cooler U.S. and global economy this year will have an impact on Michigan’s export sector, including auto production and associated manufacturing. A noticeable drop in Consumer Confidence through December and January is further bad news for the Michigan auto industry. The now-ended partial federal government shutdown will not have a significant impact on the Michigan Index for January.

For a PDF version of this report, click here: Comerica Bank’s Michigan Index Ticks Down

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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Comerica Bank's Florida Index Little Changed

January 31, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s Florida Economic Activity Index ticked up by 0.1 percent in November to a level of 115.3. November’s index reading is 17 points, or 17 percent, above the index cyclical low of 98.5. The index averaged 113.1 in 2017, 1.4 points above the average for all of 2016. October’s index reading was 115.2.

The Comerica Bank Florida Economic Activity Index saw a modest increase in November after going unchanged in October. Please note that both housing starts and total trade were estimated for the month of November. The U.S. Census has delayed the release of these data points due to the now-ended federal government shutdown. The Florida Index components were mixed in November. Four of the nine index components were positive. These were nonfarm employment, house prices, sales tax revenues and total enplanements. The other five components were negative for the month including unemployment insurance claims (inverted), housing starts, industrial electricity demand, total trade and hotel occupancy. Our Florida Index readings for October and November indicate slightly cooler activity for the state in Q4. Florida monthly unemployment insurance claims were elevated through December as the residual effects of Hurricane Michael persist. However, 2018Q4 job growth has been strong, averaging 21,000 net new jobs per month. The state’s unemployment rate was unchanged at 3.3 percent in December. Florida’s housing data was generally positive last fall. The inventory of Florida single-family homes for sale remained tight through yearend. Tight housing inventories will support further gains in area home prices and construction activity in early 2019.

For a PDF version of this report, click here: Comerica Bank’s Florida Index Little Changed

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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Comerica Bank's California Index Improves

January 31, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s California Economic Activity Index increased by 0.1 percent in November to 124.5. November’s reading is 27 points, or 27 percent, above the index cyclical low of 97.7. The index averaged 121.1 points in 2017, 2.5 points above the average for all of 2016. October’s reading was 124.4.

Comerica Bank’s California Economic Activity Index increased in November for the fourth consecutive month. Please note that both housing starts and total trade were estimated for the month of November. The U.S. Census has delayed the release of these data points due to the now-ended federal government shutdown. There were the same number of index components up as were down in November. The four positive components were non-farm employment, unemployment insurance (inverted), total trade and hotel occupancy. The four negative components were housing starts, house prices, industrial electricity demand and the Dow Jones Tech Index. California’s housing sector had a weaker trend in the second half of 2018. California housing starts continue to move back down to 2017 levels following an early year jolt in new construction. Higher mortgage rates and home prices are weighing on housing affordability in California. However, home price growth is moderating in the three major metropolitan areas of L.A., San Diego and San Francisco. Mortgage rates also ticked down in December, which will be a modest support for sales. The precipitous decline in tech stocks from October through December appears to have stabilized. However, downside risk factors are growing in both the global and domestic economy. The rising uncertainty surrounding these risk factors is beginning to chip away at consumer and business confidence in early 2019.

For a PDF version of this report, click here: Comerica Bank’s California Index Improves

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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Comerica Bank's Arizona Index Climbs Again

January 31, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s Arizona Economic Activity Index increased by 0.3 percent in November to a level of 113.7. November’s index reading is 14 points, or 14 percent, above the index cyclical low of 99.5. The index averaged 111.1 points for all of 2017, one point above the average for 2016. The October index reading was 113.4.

The Comerica Bank Arizona Economic Activity Index was up again by a moderate 0.3 percent in November, showing continued momentum in the Arizona economy with its fourth consecutive gain. Please note that both housing starts and total trade were estimated for the month of November. The U.S. Census has delayed the release of these data points due to the now-ended federal government shutdown. Seven of the nine indicators were positive for November, including nonfarm employment, unemployment insurance claims (inverted), house prices, industrial electricity demand, hotel occupancy, state sales tax revenue and enplanements. Only housing starts and state total trade posted a decline for the month. Mid-year population estimates released by the Census Bureau last month show Arizona's headcount at 7,171,646, as of July 1, 2018. That's good for 122,770 new residents, or a 1.7 percent year-over-year increase. Only Texas, California, and Florida added more people over the same period. A handful of western states, Nevada, Idaho, and Utah, posted higher year-over-year growth rates. Arizona’s unemployment rate remains elevated at 4.8 percent in December. That comes despite having recorded a 3.4 percent year-over-year gain in payrolls, the strongest year for employment growth in Arizona since 2006, at the height of the U.S. housing bubble.

For a PDF version of this report, click here: Comerica Bank’s Arizona Index Climbs Again

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.
 

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January 2019 ADP Jobs

January 30, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Solid ADP Report Heading into Shakier BLS Data

•    The ADP Employment Report for January showed a solid increase of 213,000 private sector jobs.
•    Mortgage Applications for purchase are up 6 percent in late January from year-ago levels.
•    Consumer Confidence fell noticeably in January after falling in December.
•    The Case-Shiller U.S. National House Price Index for November was up 5.2 percent over the prior year.

The U.S. jobs machine rolled unabated through January, at least in the private sector, according to the ADP Employment Report. The longest ever U.S. government shutdown likely reduced the official Bureau of Labor Statistics headline job count for January, which will be released Friday morning. The ADP numbers do not include government workers, and the ADP numbers for January were positive. According to ADP, 213,000 private-sector jobs were added for the month. Small firms, with less than 50 employees, added 63,000 jobs in January. Medium-sized companies, with 50-499 workers, added 84,000 jobs. Large companies added 66,000. Construction payrolls were surprisingly strong, up 35,000 jobs in January, as were manufacturing payrolls which gained 33,000 net new jobs. Most other major categories were solid. Natural resources and mining gave up 1,000 jobs, consistent with lower oil prices. We will stick to our low-ball estimate of 150,000 net new jobs for the month in the official BLS data. We expect to see some normalization from the robust December jobs data. Also, we expect to see a drag from government employment due to the shutdown.

Mortgage apps jumped in early January on a non-seasonally adjusted basis, and then eased through the second half of the month. For the week ending January 25, purchase apps eased by 2.3 percent while refi apps gave up 5.5 percent. On a four-week moving average basis, refis are down 16.7 percent from a year ago. Purchase apps are up 6 percent from a year ago. Very cold weather at the end of January may be a moderate drag on housing data for the month. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage ticked up slightly to 4.76 percent in late January.

The Conference Board’s Consumer Confidence Index was near an all-time high last fall. That is no longer the case after a large drop in December was followed by another large drop in January. The Consumer Confidence Index, at 120.2 for January remains above its long-term average. Changes in consumer confidence often have momentum, so we will watch this carefully going forward. Fortunately, consumer confidence does not have to equal consumer spending. Sometimes when the going gets tough, the tough go shopping. That was undoubtedly not the case for unpaid federal government workers through January who missed two paychecks. A temporary end to the federal government shutdown may help to stabilize consumer confidence. But given that it is just a temporary respite at this point, it may be just a half measure that leaves lingering uncertainty.

The Case-Shiller U.S. National House Price Index was stronger than expected in November, up 5.2 percent over the previous 12 months. Most of the key 20 cities showed month-over months gains in the seasonally adjusted data for November. However, Cleveland, San Francisco and Seattle showed declines.

Market Reaction: U.S. equity markets opened with gains. The yield on 10-Year T-bonds is up to 2.72 percent. NYMEX crude oil is up to $53.90/barrel. Natural gas futures are down to $2.86/mmbtu.

For a PDF version of this report, click here: January ADP Jobs

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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Comerica Economic Weekly, January 25, 2019

January 25, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic data released this week was mixed. The U.S. economy is in a transitional state beset by policy headwinds and a cooling global economy. 

While the levels of many data streams are good, the direction of change in recent releases (the deltas) is not good. Inflections in economic data combined with financial market volatility coming at a time when the corporate sector looks increasingly vulnerable to cooler profits is a witch’s brew for the U.S. economy.

At this crucial time, many federal government data sources are not operational due to the partial federal government shutdown. Fortunately, private data sources, the Federal Reserve and some federal offices, including the Bureau of Labor Statistics, are still releasing data. It remains to be seen whether crucial fourth quarter GDP data will be released by the Bureau of Economic Analysis next week as scheduled. Even if the BEA gets back to work soon, it may take some time to process their data and publish it.

Now that the federal shutdown has extended through two government pay cycles, conditions are dire for many affected households. A disruption to air travel due to the lack of pay for TSA workers could be a choke point for the economy. Nonetheless, we believe that the drag on first quarter GDP from the shutdown will be small. However, through this expansion cycle first quarter GDP growth has often been the weakest of the year. The BEA has worked to reduce the residual seasonality in the GDP data, so that may no longer be an issue. But the potential for residual seasonality in the GDP data plus the government shutdown through at least a third of Q1 could result in a weaker than expected Q1 GDP print. 

Each additional week of the government shutdown will put more sand in the gears of the U.S. economy. It is conceivable that a shutdown measured in months could be a contributing factor for a U.S. recession.

The Federal Open Market Committee meets next Tuesday and Wednesday. We expect the Fed to leave policy levers unchanged. However, the messaging may be important. Fed Chairman Jay Powell may use the policy announcement and his post-meeting press conference to reinforce the Fed’s “patient” stance toward interest rate hikes. We believe that the fed funds rate is getting close to its maximum for this cycle and a patient Fed may only increase the fed funds rate one or two more times. We expect to see no rate increase until June. Also, we might receive some clarification from the Fed about its balance sheet reduction program. There is growing speculation that the Fed could end balance sheet reduction (mature asset runoff, quantitative tightening, whatever you like to call it) sooner rather than later. The floor for the Fed’s balance sheet appears to be rising as headwinds increase for the U.S. economy. 

The Conference Board’s Leading Economic Index for the U.S. dipped by 0.1 percent in December. This is the second decline in the last three months. 

Initial claims for unemployment insurance fell by 13,000 for the week ending January 19, to hit 199,000. Federal workers who are not receiving paychecks are eligible for unemployment benefits, so we expect that category of UI claims to increase sharply through January. 

Existing home sales decline by 6.4 percent in December, to a 4.99 million unit annual rate.

For a PDF version of this report, click here:  Comerica Economic Weekly, January 25, 2019

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations.  The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team.  We are not offering or soliciting any transaction based on this information.  We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation.  Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed.  Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.  

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December Leading Indicators, January UI Claims

January 24, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Leading Economic Index Moves Down, with an Asterisk*

*     The Conference Board’s Leading Economic Index for December decreased by 0.1 percent.
*     Initial Claims for Unemployment Insurance fell by 13,000 for the week ending Jan. 19, to hit 199,000.

The Conference Board’s Leading Economic Index for the U.S. dipped by 0.1 percent in December. There are two important things to say about the December LEI. First, it is not unusual for the leading index to dip briefly into negative territory and then bounce back without the U.S. economy falling into recession. However, being down two out of the last three months focuses our attention. Secondly, due to the partial federal government shutdown, two out of ten components of the leading index were not available for December. The Conference Board developed its own forecast of manufacturers’ new orders for consumer goods and materials and developed its own forecast for building permits. So, we must give the December Leading Economic Index an asterisk and say that it is subject to a potentially larger than normal revision. According to the Conference Board, six out of ten subcomponents of the leading index were positive in December. They were, beginning with the largest positive contributors, initial claims for unemployment insurance, the Leading Credit Index, interest rate spread, consumer expectations for business conditions, manufacturers’ new orders for nondefense capital goods excluding aircraft and manufacturers’ new orders for consumer goods and materials. The negative components were stock prices, the ISM New Orders Index and building permits. Average weekly manufacturing hours were unchanged in December. The Coincident Index was positive for the eleventh month in a row, gaining 0.2 percent in December. The Lagging Index was positive for the third consecutive month, increasing by 0.5 percent in December.

Initial claims for unemployment insurance fell by 13,000 for the week ending January 19, to hit 199,000. This is the lowest level of initial claims since November 1969. The upward trend in initial claims visible from mid-September through early December 2018 appears to have reversed. Continuing claims for unemployment benefits fell by 24,000 for the week ending January 12, to hit 1,713,000. Federal workers who are not receiving paychecks are eligible for unemployment benefits, so we expect that category of UI claims to increase through January. However, federal workers who are still working but are not getting paid are not eligible for UI benefits. Initial claims filed by federal government workers increased by 14,965 for the week ending January 12. Continuing claims data shows that 24,681 former federal employees were claiming UI benefits through January 5, up 11,183 from the previous week.

We can see in today’s U.S. economic data that the federal government shutdown is muddying up both the government generated data and the private sector data. Fortunately, there is some redundancy in economic data and much of the private sector data is still unaffected. Our view into the current condition of the U.S. economy is imperfect at best, now it is getting murkier.

Market Reaction: U.S. equity markets have reversed opening losses. The 10-year Treasury bond yield is down to 2.72 percent. NYMEX crude oil is up to $52.73/barrel. Natural gas futures are up to $3.01/mmbtu.

For a PDF version of this report, click here: December Leading Indicators, January UI Claims

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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December 2018 Existing Home Sales

January 22, 2019 by December 2018 Existing Home Sales

Home Sales Still Weak Despite Lower Mortgage Rates

*     Existing Home Sales fell by 6.4 percent in December, to a 4,990,000 unit annual rate.

Home sales have been on a roller coaster ride over the past 12 months. After peaking at a 5,600,000 unit annual rate last March, existing home sales slid through late summer. Existing home sales dipped to a 5,150,000 million unit rate in September 2018, the lowest sales rate since November 2015. Increasing mortgage rates were a key factor in the 2018 slide in home sales. The Mortgage Bankers Association’s rate for a 30-year fixed rate mortgage climbed from 4.33 percent at the start of 2018, to 5.11 percent through late September. Even with higher mortgage rates, existing home sales ticked up slightly in October and again in November to a 5,330,000 unit rate. Meanwhile, mortgage rates peaked early in November at 5.30 percent and then retreated to 5.21 percent by the end of November. Mortgage rates continued to ease through December, falling to 4.97 percent by the end of the month. Despite the gradual decline in mortgage rates through December, existing home sales fell noticeably in December by 6.4 percent to a 4,990,000 unit annual rate. In sum we can say that higher mortgage rates were a significant negative factor for home sales through the first nine months 2018, but lower rates at the end of 2018 only paused but did not break that downward momentum.

Existing home sales fell across all four regions in December. The Northeast saw a 6.8 percent drop. The Midwest was down 11.2 percent. The South dripped by 5.4 percent and existing home sales in the West dipped by 1.9 percent. The months’ supply of existing homes on the market fell to a tight 3.7 months’ worth in December. The median selling price of an existing home fell to $253,600 in December, up by 2.9 percent over the previous 12 months.

We expect to see another soft month for existing home sales in January. The ongoing partial federal government shutdown has upended finances for 800,000 federal workers and their families. Consumer sentiment fell hard in January.

Updates for new home sales data are not available due to the partial federal government shutdown.

Market Reaction: U.S. equity markets opened with losses. The 10-year Treasury bond yield is down to 2.75 percent. NYMEX crude oil is down to $51.95/barrel. Natural gas futures are down to $3.03/mmbtu.



For a PDF version of this report, click here: December 2018 Existing Home Sales

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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Comerica Economic Weekly, January 18, 2019

January 18, 2019 by Robert A. Dye, Ph. D., Daniel Sanabria

U.S. economic data released this week was mostly positive, but our line of sight into the U.S. economy is increasingly obscured due to the now longest federal government shutdown in U.S. history.

Data produced by the U.S. Census Bureau and the Bureau of Economic Analysis are not being released due to the government shutdown. That means that the key retail sales and new housing construction data for December that was originally supposed to be release this week will be delayed. The Federal Reserve, the Bureau of Labor Statistics, academic institutions and private sources are all unaffected by the government shutdown.

The Philadelphia Fed reported continued positive manufacturing conditions in January. The Empire State Manufacturing Survey produced by the New York Fed saw only a slight improvement in activity in January.

The National Association of Home Builders Housing Market Index ticked up slightly in January. Builder optimism still remains well below 2018 levels. Lower mortgage rates are helping to support demand.

The Mortgage Bankers Association composite mortgage applications index was up for the second consecutive week. The purchase index was up 9.1 percent and the refi index was up 18.7 percent for the week of January 11.

Labor data was still good through early January, but the government shutdown will likely be more visible in the next round of data. Initial claims for unemployment insurance declined by 3,000 to hit 213,000 for the week ending January 12. Continuing claims climbed by 18,000 to hit 1,737,000 for the week ending January 5.

The Producer Price Index for December fell by 0.2 percent, as crude oil prices dipped to 2018 lows. The energy sub-index was down 5.4 percent for the month. Core PPI (less food, energy and trade) was unchanged in December. The headline PPI was up 2.5 percent and core PPI was up 2.8 percent for the year ending in December.

The December industrial production data from the Federal Reserve marks the 100th anniversary of that data series. Total industrial production increased by a moderate 0.3 percent in December after gaining 0.4 percent in November. Manufacturing output was strong in December, up 1.1 percent. Mining output increased by 1.5 percent. The utility sector was a drag with output declining by 6.3 percent due to mild weather.

On Tuesday, the lower house of the U.K. Parliament voted down the deal that Prime Minister Teresa May negotiated for the U.K. to leave the E.U.  May’s government survived a no confidence vote on Wednesday by a slim 19 vote margin. According to Article 50 of the EU treaty, March 29 is the date for Brexit, with or without a negotiated divorce. However, a recent ruling by the European Court of Justice allows the U.K. to unilaterally revoke the Article 50 exit clause. More intrigue to come.

Comments today from New York Federal Reserve Bank President John Williams reinforce the Fed’s new “patient” language. Williams acknowledged that the Fed is seeing emerging headwinds from the partial government shutdown in the U.S. and from elevated geopolitical uncertainties abroad. Williams told the New Jersey Bankers Association that the Fed will be patient and prudent in its approach to monetary policy.

We expect the Fed to leave interest rates unchanged at the next two FOMC meetings, maybe longer.



For a PDF version of this report, click here: Comerica Economic Weekly, January 18, 2019

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations.  The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team.  We are not offering or soliciting any transaction based on this information.  We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation.  Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed.  Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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Comerica Economic Weekly, January 11, 2019

January 11, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic data was mostly positive this week as the partial federal government shutdown extended through its third week. 

Recent commentary by Fed Chairman Jay Powell and his colleagues, and the minutes from the Federal Open Market Committee meeting of December 18/19 shows an important but subtle change in Fedspeak. Powell has used the word “patient” several times recently to describe the Fed’s attitude toward more rate hikes for 2019. “Patient” also shows up in the Fed minutes released this week. 

Recall that former Fed Chairwoman Janet Yellen also used the word “patient” to describe her attitude toward eventual rate hikes in early 2015. When pressed, Yellen said that being patient meant waiting a couple of meetings. Pressed further, Yellen implied that a couple meant about two. We should not hold Powell to a strict definition of patient or of a couple, but his choice of language appears to be purposeful. 

We expect the Fed to keep monetary policy unchanged at the upcoming FOMC meeting over January 29/30 after tightening in December. Being patient means that they would likely skip tightening over March 19/20 as well. If they raise the fed funds rate at the following meeting over April 30/May 1, that would allow them to break the cadence established over 2018 of one 25 basis point rate hike every other FOMC meeting. It would also re-activate the four “dead” meetings a year when the Fed Chair did not hold a press conference. Powell will have a press conference after all eight FOMC meetings this year, so we consider all eight meetings in 2019 to be “live”. 

The Consumer Price Index for December fell by 0.1 percent, dragged down by lower petroleum prices. The energy sub-index dropped by 3.5 percent for the month. Core CPI (less food and energy) increased by 0.2 percent for the third consecutive month. For the year ending in December, headline CPI was up a moderate 1.9 percent, while core CPI gained 2.2 percent, both close to the Fed’s symmetrical 2 percent target.

Labor data was good. Initial claims for unemployment insurance dropped by 17,000 for the week ending January 5, to hit 216,000. Continuing claims fell by 28,000, to hit 1,722,000 for the week ending December 29. The Job Opening and Labor Turnover Survey for November showed a dip in the job openings rate, to a still high 4.4 percent. The hiring rate eased to 3.8 percent. 

Business optimism was little changed in December, after falling in November according to the National Federation of Independent Businesses. The December survey says capital spending plans for 2019 have eased. 

The ISM Non-Manufacturing Index dipped from a strong 60.7 in November, to a still-positive 57.6 in December. Recall that the ISM Manufacturing survey also showed a similar dip for the month. In the December Non-MF survey, which captures the bulk of the U.S. economy, all ten reported sub-indexes were in positive territory, above 50. Most anecdotal comments were positive. Only one industry, mining, reported contraction for the month. 

According to the Mortgage Bankers Association, mortgage apps for purchase rose sharply in early January, up 16.5 percent, as mortgage rates eased.

Economic data from the Census Bureau is still MIA due to the federal government shutdown, so we have nothing to report about December international trade.

For a PDF version of this report, click here:  Comerica Economic Weekly, January 11, 2019

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations.  The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team.  We are not offering or soliciting any transaction based on this information.  We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation.  Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed.  Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.  

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January 2019 U.S. Economic Outlook

January 7, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Two Stories, One Economy

There are two believable but contrasting stories for the U.S. economy as we turn the page into 2019. One story focuses on the majority of economic data, which indicate very positive current conditions. Labor-related data in particular is stellar. December payrolls were much stronger than expected, expanding by 312,000 jobs. October and November payrolls were revised up significantly. Wages were up 3.2 percent in December over the previous year. Job openings exceed the number of unemployed. Unemployment insurance claims remain extremely low. The unemployment rate ticked up inconsequentially in December, to just 3.9 percent. We expect it to tick back down in the months ahead. Also, inflation is benign and corporate profits have been strong.

The other story is forward looking, focusing on increasing downside risks for the U.S. economy in 2019 and beyond. The list of downside risk factors for the U.S. economy has grown appreciably in recent months. Equity markets sold off in October and again in December. Bond yields have dropped as investors shift toward quality. The middle part of the Treasury yield curve has flattened, raising concerns about yield curve inversion. U.S. housing data is underperforming. Housing affordability remains a critical issue for many new buyers. Support from the rest of the world is faltering. Economic growth in China and in Europe eased in the second half of 2018 and looks set to ease further in 2019. The quality of corporate debt markets is a growing concern.

Trade policy is another major source of uncertainty for 2019. Increased tariffs on imports from China and restrictions on U.S. exports to China would add further strains to supply chains and corporate balance sheets. Higher input prices would be passed through and ultimately add to inflationary pressure. More inflation could require the Federal Reserve to raise interest rates more than expected. Conversely, a resolution to the trade war and a roll back in trade friction could be significant positives for both the U.S. and China in 2019.

In this uncertain environment, the Federal Reserve executed its fourth 25 basis point rate hike in 2018 on December 19, pushing the fed funds rate range to 2.25-2.50 percent, 100 basis points above where it was a year ago. The Fed believes that the fed funds rate is getting closer to “neutral” where it is neither stimulative nor restrictive for the overall economy. The problem is that a “neutral” fed funds rate is a theoretical concept that is very difficult to determine in advance. It may be the case that “neutral” is found only by going farther than neutral.

The combination of higher interest rates and high wage rates could start to squeeze corporate profits later this year. Weaker corporate profits are often the trip wire for corporate restructuring and layoffs. General Motors and Tata Motors have recently announced restructuring plans which highlight the uncertainty in the global auto industry. Verizon’s recent layoff announcement shows stress in the telecom sector.

Lower oil prices and reduced business confidence could impede business fixed investment in late 2018 and into 2019. After a strong first half of 2018, growth in business fixed investment cooled to just 2.5 percent (annualized) in the third quarter. The fourth quarter GDP data will tell us if the cooler Q3 numbers were just in response to faster growth earlier, or if the Q3 cool down in investment spending growth was a true inflection point for the economy.

Finally, the U.S. political climate is likely to be contentious in 2019, raising the possibility of lurching fiscal policy by late 2019. The now two-week-long partial federal government shutdown suggests that federal budget negotiations later this year will be difficult.


For a PDF version of this report, click here: January 2019 U.S. Economic Outlook

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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Comerica Economic Weekly, January 4, 2019

January 4, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Worries about a cooler Chinese economy and Apple’s related downgrade of its 2019 sales forecast dominated financial news this week. Then the whale of a jobs report for December surfaced Friday morning.

The Caixin China General Manufacturing Index for December fell to 49.7, just below the 50 break even mark, indicating slightly deteriorating conditions there. Other consumer-related metrics for China appear to be weakening as well. A significant slowdown in China’s “real” economy would come with spillover effects for its key trading partners as well as for financial markets globally. 

The surprising BLS jobs report for December showed a robust net gain of 312,000 new jobs for the month. November and October payrolls were revised up by 58,000 jobs. The average work week for December increased from 34.4 to 34.5 hours. Average hourly earnings increased by 11 cents or 0.4 percent from November and were up by 3.2 percent over the previous 12 months, a new high for this cycle. The unemployment rate ticked up to 3.9 percent with a large increase in the labor force. The very strong official BLS payroll data was corroborated by a strong ADP Report for December that showed a net gain of 271,000 private-sector jobs for the month. 

If the partial federal government shutdown extends deep into next week we could see a significant drag on January payroll totals.

Initial claims for unemployment insurance increased by 10,000 for the week ending December 29, to hit a still-low 231,000. It looks like the series is lifting after its September low. Continuing claims increased by 32,000 for the week ending December 22, to hit 1,740,000.

Mortgage applications fell at year end. This is non-seasonally adjusted data, so we expect to see mortgage apps tail off over the holidays. Purchase apps were down 7.6 percent for the week ending December 28, their third consecutive weekly decline. Refi apps fell 10.6 percent for the week, also the third consecutive decline. Year-over-year comparisons look better. On a four-week moving average basis, refi apps were down 32.5 percent from a year ago, purchase apps were essentially unchanged from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage eased in late December to 4.84 percent, down 33 basis points from early November.

The ISM Manufacturing Index for December fell to a still-positive 54.1, down from November’s 59.3. The new orders sub-index fell sharply, down from a strong 62.1 in November, to a barely positive 51.1 in December. Production eased from a strong 60.6 in November, to 54.3 in December. Eleven out of eighteen industries reported expansion in December. The six industries reporting contraction were printing, fabricated metals, nonmetallic minerals, petroleum, paper and plastics. Anecdotal comments were led by “Growth appears to have stopped”. The report implies an inflection point for the manufacturing sector, not contracting overall, but clearly less positive than it was last summer. 

Construction spending data for November was not released this week as scheduled, due to the federal government shutdown which has halted updates to the Census Bureau’s website. International trade and factory orders for November may not be released next week as scheduled if the shutdown continues through the week.  The BLS website is functioning through the shutdown.

For a PDF version of this report, click here:  Comerica Economic Weekly, January 4, 2019

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations.  The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team.  We are not offering or soliciting any transaction based on this information.  We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation.  Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed.  Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.  

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December 2018 U.S. Employment

January 4, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

A Whale of Jobs Report

•Payroll Employment increased by 312,000 jobs in December, well above expectations. 
•The Unemployment Rate for December increased to 3.9 percent.
•Average Hourly Earnings increased by 0.4 percent in December and were up 3.2 percent over the year. 
•The Average Workweek in November increased to 34.5 hours.

Substantially more workers worked longer hours and got paid more money in December than expected. There is nothing not to like about that. The surprising BLS jobs report for December showed a robust net gain of 312,000 new jobs for the month. November and October payrolls were revised up by a total of 58,000 jobs. The average work week for December increased from 34.4 to 34.5 hours. Average hourly earnings increased by 11 cents or 0.4 percent from November and were up by 3.2 percent over the previous 12 months, a new high for this cycle. The unemployment rate ticked up to 3.9 percent with a large increase in the labor force. Weather effects were modest in December compared with the 10-year average, so that added about 30,000 jobs to the December total. 

By any measure the December BLS payroll numbers are impressive. They align with the strong ADP employment report released yesterday. U.S. labor data now stands in contrast with other cooling U.S. and international metrics. The strong December jobs data comes just a few weeks before the next Federal Open Market Committee meeting over January 29/30. We expect the Fed to hold the fed funds rate range steady at 2.25-2.50 percent and make no other changes to monetary policy. But there will be a very interesting discussion at the Fed about what to do in the following meetings. The Fed’s dot plot from December is consistent with two 25 basis point rate hikes in 2019. However, financial markets have discounted that. We expect the implied probabilities of future rate hikes to increase as a result of the strong December labor data. 

The establishment survey indicated that jobs gains were broad-based in December. Mining and logging industries gained 4,000 workers despite lower oil prices. Construction built a strong 38,000 worker increase. Manufacturing employment increased by a solid 19,000 net new jobs in December. Wholesale trade added 8,400. Retail added 23,800. Information services broadcast a loss of 1,000 jobs. Financial services rung up 6,000 net new jobs in December. Professional and business services accounted for a gain of 43,000 net new jobs. Education and health services showed a strong gain of 82,000 jobs for the month. Government employment was up by 11,000 jobs. If the partial federal government shutdown extends into late next week, there will be a noticeable drag from federal government employment in the January data.

Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is up to 2.63 percent. NYMEX crude oil is up to $47.99/barrel. Natural gas futures are up to $2.86/mmbtu.

For a PDF version of this report, click here:  December 2018 U.S. Employment

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations.  The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team.  We are not offering or soliciting any transaction based on this information.  We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation.  Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed.  Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.  

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