May 2019 Housing Starts, June NAHB

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

Housing Starts Ease in May, Despite Lower Mortgage Rates

*     Housing Starts decreased by 0.9 percent in May to a 1,269,000 unit annual rate.
*     Housing Permits were little changed in May, inching up by 0.3 percent, to a 1,294,000 unit annual rate.
*     Builder Confidence fell in June according to the National Association of Home Builders.

Despite the boost to housing affordability from lower mortgage rates this spring, builders were still cautious in May, keeping the level of housing starts and permits little changed from April. Total housing starts eased by 0.9 percent to a 1,269,000 unit annual rate in May. Single-family starts fell by 6.4 percent, to an 820,000 unit rate, well below the recent high of 966,000 from January. Multifamily starts jumped up by 10.9 percent, to a 449,000 unit rate, the strongest rate since January 2018. This was the third double-digit percent gain in multifamily starts in the last four months, so it does look like there is a little momentum on the multifamily side. Total permits were little changed in May, gaining just 0.3 percent for the month, to a 1,294,000 unit annual rate. Single-family permits were up by 3.7 percent, to an 815,000 unit rate. Multifamily permits fell by 5.0 percent, to a 479,000 unit annual rate. The gap between multifamily permits and multifamily starts has been persistent since early 2017 and does not necessarily imply that starts will catch up.

According to the National Association of Home Builders, their builder confidence index fell two points in June, to 64. The NAHB says that builders still face high development and construction costs which are contributing to affordability issues for entry-level buyers.

The May housing starts data will be reviewed by the Federal Reserve as the Federal Open Market Committee begins its two-day meeting this morning. We expect to see no changes to monetary policy at the conclusion of the meeting tomorrow afternoon. However, we do expect Fed Chairman Jay Powell to change the tone of the policy announcement and his comments at the follow-up press conference. We look for the Fed to acknowledge that U.S. and international economic momentum slowed in the second quarter and that they will be open to reducing the fed funds rate soon, if needed. In our June U.S. Economic Update, we have one 25 basis point fed funds rate cut occurring in July, and one more in December of this year. We believe that a fed funds rate cut soon would be positive for the overall U.S. economy, and mildly positive for housing markets. However, this has been a long buying cycle for housing that has largely spent out any pent-up demand following the Great Recession.

Market Reaction: Stock indexes opened with gains. The yield on 10-year Treasury bonds is down to 2.06 percent. NYMEX crude oil is up to $53.48/barrel. Natural gas futures are down to $2.37/mmbtu.

For a PDF version of this report, please click here: May 2019 Housing Starts, June NAHB

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, June 14, 2019

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

U.S. economic data was generally positive this week. Headline inflation for May was weighed down by falling petroleum prices. 

Retail sales increased by 0.5 percent in May, boosted by higher unit auto sales. Unit auto sales increased noticeably in May, from a 16.4 million unit rate in April, up to a 17.4 million unit rate. The dollar value of retail sales of autos and parts increased by 0.7 percent for the month. Retail sales ex-autos gained 0.5 percent in May. Electronics and appliance store sales gained 1.1 percent for the month, as did sporting goods stores. Over the 12 months ending in May, total retail sales were up a moderate 3.2 percent. The Consumer Price Index was up 1.8 percent over this period, implying a roughly 1.4 percent increase in retail sales for the year, after inflation. 

Total industrial production gained 0.4 percent in May, reversing a 0.4 percent loss in April. Manufacturing output increased by 0.2 percent. Total motor vehicle assemblies increased from a 10.65 million unit pace in April, to 11.33 million in May. Mining output inched up by 0.1 percent. Utilities gained 2.1 percent in May, after a 3.1 percent loss in April. Over the year ending in May, total industrial production was up 2.0 percent. Capacity utilization inched up to 78.1 percent, still well below the cyclical peak of 79.6 percent from last November. 

The Consumer Price Index increased by just 0.1 percent for the month, after increasing by 0.3 percent in April. The CPI’s energy price sub-index fell by 0.6 percent in May after three months of strong gains. Food prices gained 0.3 percent in May, pushed up by non-alcoholic beverages and other categories. Core CPI (less food and energy) increased by just 0.1 percent for the fourth consecutive month. Over the previous 12 months, headline CPI was up by 1.8 percent, well below the 2.9 percent year-over-year gains from last summer. Core CPI was up by 2.0 percent for the 12 months ending in May, down from the 2.3 percent year-over-year gain from June 2018.

The headline Producer Price Index for Final Demand gained just 0.1 percent in May. The energy sub-index for PPI fell by 1.0 percent for the month. Wholesale food prices ticked down 0.3 percent. The trade sub-index fell by 0.5 percent in May after posting a similar loss in April. Core PPI (excluding food, energy and trade) increased 0.4 percent in May for the second consecutive month. Over the previous 12 months, headline PPI was up by 1.8 percent, down significantly from the 3.4 percent year-over-year increase from last July. Core PPI was up by 2.3 percent for the 12 months ending in May, down from 3.1 percent year-over-year growth last September.

Total mortgage applications increased by 26.8 percent for the week ending June 7. Refis surged, up 46.5 percent for the week, after gaining 6.4 percent the week before. Purchase apps were also up in early June, increasing by 10.0 percent. On a four-week moving average basis, refi apps were up 47.5 percent over the previous 12 months. Purchase apps were up 6.3 percent over the year. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage fell to 4.12 percent.

Initial claims for unemployment insurance increased by 3,000 for the week ending June 8, to hit 222,000. Continuing claims gained 2,000, to hit 1,695,000 for the week ending June 1. Claims data into early June still looks good, contrary to the May payroll data which was weaker than expected.

According to the National Federation of Independent Business, small business optimism bounced back in May. Their marquis index increased to 105.0 in May, after sinking to 101.2 in January.

For a PDF version of this report, please click here:  Comerica Economic Weekly, June 14, 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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May CPI, PPI, June Mortgage Apps

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

Lower Energy Prices Weigh on Headline Inflation 

•The May Consumer Price Index increased by 0.1 percent, as energy prices dropped.
•The Producer Price Index for May also gained just 0.1 percent.  
•Mortgage Applications jumped by 26.8 percent in early June as mortgage rates declined.

Falling petroleum prices kept headline inflation readings subdued in May. The Consumer Price Index increased by just 0.1 percent for the month, after increasing by 0.3 percent in April. The CPI’s energy price sub-index fell by 0.6 percent in May after three months of strong gains. High inventories and the prospect of cooler global demand have pulled crude oil prices (WTI) down from near $64 per barrel in early May to near $52 per barrel in mid-June. We expect to see ongoing drag from energy prices in the June CPI. Food prices gained 0.3 percent in May, pushed up by non-alcoholic beverages and other categories. Core CPI (less food and energy) increased by just 0.1 percent for the fourth consecutive month. Over the previous 12 months, headline CPI was up by 1.8 percent, well below the 2.9 percent year-over-year gains from last summer. Core CPI was up by 2.0 percent for the 12 months ending in May, down from the 2.3 percent year-over-year gain from June 2018. Recent tepid gains in core CPI are set to pull the year-over-year gains even lower in the months ahead. 

Producer prices are also feeling the drag from energy. As reported yesterday, the headline Producer Price Index for Final Demand gained just 0.1 percent in May. The energy sub-index for PPI fell by 1.0 percent for the month. Wholesale food prices ticked down 0.3 percent. The trade sub-index fell by 0.5 percent in May after posting a similar loss in April. Core PPI (excluding food, energy and trade) increased 0.4 percent in May for the second consecutive month. Over the previous 12 months, headline PPI was up by 1.8 percent, down significantly from the 3.4 percent year-over-year increase from last July. Core PPI was up by 2.3 percent for the 12 months ending in May, down from 3.1 percent year-over-year growth last September. 

The downward trend in year-over-year inflation readings will be a topic for discussion at the upcoming Federal Open Market Committee meeting over June 18/19. We expect the Fed to keep interest rates unchanged at this meeting, but we also expect the Fed to start modifying their forward guidance, allowing for the possibility of rate cuts soon. 

Total mortgage applications increased by 26.8 percent for the week ending June 7. Refis surged, up 46.5 percent for the week, after gaining 6.4 percent the week before. Purchase apps were also up in early June, increasing by 10.0 percent. On a four-week moving average basis, refi apps were up 47.5 percent over the previous 12 months. Purchase apps were up 6.3 percent over the year. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage fell to 4.12 percent. 

Market Reaction: U.S. equity markets opened with losses. The 10-Year Treasury bond yield is down to 2.12 percent. NYMEX crude oil is down to $51.93/barrel. Natural gas futures are down to $2.39/mmbtu.

For a PDF version of this report, please click here:  May CPI, PPI, June 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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June 2019 U.S. Economic Outlook

June 10, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

The L4L Economy

The title of our January 2018 U.S. Economic Outlook was 2018: Out of the Shadow of the Great Recession.  We began that article with the generalization from Carmen Reinhart and Ken Rogoff that it takes about 10 years for an economy to recover from a severe financial crises. 2018 marked the 10 year anniversary of the Great Recession for the U.S. economy. Obviously, the generalization begs the question…what’s next? Approaching the halfway point of 2019 we will hazard a guess. We will call this the L4L economy. 

L4L is a tactic defined by former Federal Reserve chairman Ben Bernanke as a monetary policy tool. It stands for lower for longer. In his October 2017 paper titled Monetary Policy in a New Era, Bernanke discusses ways that the Federal Reserve may seek to influence the economy in this new post-crises era. In Bernanke’s framework, lower for longer means that the Federal Reserve may need to signal that it will keep interest rates lower for a longer period than the current conditions and other policy tools (such as Taylor rules) may indicate. By announcing that the Federal Reserve will keep rates lower for longer, businesses will feel emboldened to take on cheap debt in order to finance expansions, thus stimulating the economy. 

We believe that the lower for longer concept also applies more broadly to the overall U.S. and global economies. L4L also describes overall economic growth, inflation and interest rates generally, beyond the specific application of monetary policy. In the L4L economy, real GDP growth rates are lower than what many people think is normal. Inflation is also lower than expected. Indeed central banks globally, including the Federal Reserve, are asking themselves how to conduct monetary policy in an era of persistently low inflation. Weaker growth, and demand for capital, plus weaker inflation, mean that interest rates are also going to be lower for longer than many of us feel is normal. 

For example, normal real GDP growth in the 1950s and 1960s centered around 4 percent, sometimes higher and sometimes lower. During the 1980s and 1990s that central tendency dropped to about 3 percent. Lately, during the 2010s, normal real GDP growth looks closer to 2.5 percent. Potential GDP growth is a useful concept for analyzing the step down in GDP growth over recent decades. It is driven by productivity growth and by labor force growth. In an era of lower-than-expected productivity growth and lower-than-expected growth in the working age population, potential GDP will also be low.  

Inflation has also stepped down. The Consumer Price Index increased at double digit annual rates in the 1970s, pushed hard by the energy price shocks caused by the OPEC oil embargoes. During the 1980s, 1990s and 2000s, the CPI tended to increase at around a 3 percent annual rate. In the 2010s, that number is closer to about 1.8 percent. 

Interest rates have also trended down. We expect the 10-Year Treasury bond yield to fall back below 2 percent by early next year, well below the double digit peak of the early 1980s.

In the L4L economy, Federal Reserve monetary policy is more constrained by the zero lower bound for interest rates. Also, we believe that the economy is susceptible to mild recessions of the type that occurred in 2001. The buildup of downside risk factors that appears to coalesce at the end of this year and into early 2020 is a concern. With deft monetary and fiscal policy, we believe that a recession can be avoided, and that is our forecast. However, we believe that in the L4L economy, we are flying closer to the treetops, and the downdrafts matter.

For a PDF version of this report, please click here:  June 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, June 07, 2019

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

U.S. economic data this week was mixed, but capped by a weaker-than-expected payroll number for May. This, in combination with the threat by the Trump Administration of increased trade tariffs on Mexico and China, puts the Federal Reserve in the spotlight as it prepares for the upcoming Federal Open Market Committee meeting over June 18-19.

We expect the Fed to leave the fed funds rate unchanged on June 19. But we expect them to provide forward guidance to indicate that a rate cut is coming in the near future, possible as early as July 31. Market expectations for at least one fed funds rate cut this year have increased in recent weeks. Currently, the fed funds futures market shows an implied probability of 64 percent that rates will remain unchanged on June 19. However, the implied probability of at least one rate cut by the end of this year is now 99 percent. The implied probability of two or more 25 basis point rate cuts before the end of this year now stands at 88 percent.

The official Bureau of Labor Statistics job count for May showed a weaker-than-expected gain of 75,000 jobs for the month. This follows the weak ADP Employment Report for May, issued on Wednesday, that showed a gain of just 27,000 net new private-sector jobs. The unemployment rate remained low at 3.6 percent in May. Average hourly earnings were up a weak-to-moderate 0.2 percent for the month and were up 3.1 percent over the previous 12 months. The tepid gain in wages reinforces the interpretation of the soft payroll numbers. The average workweek was unchanged at 34.4 hours. Revisions to March and April payrolls were negative, totaling -75,000 jobs for the two months.

Other labor-related data for May looks better. Initial claims for unemployment insurance were unchanged at 218,000 for the week ending June 1. Continuing claims gained 20,000 for the week ending May 25. This is well within the range of normal and should not cause alarm.

The nominal U.S. international trade gap narrowed slightly in April after widening in March. Exports dropped by $4.6 billion in April after increasing for three consecutive months. Imports dipped by $5.7 billion as imports of goods decreased by $5.4 billion. After adjusting for price changes, the real trade balance in goods for April was below the first quarter average, suggesting that as of now, trade will be a moderate positive for Q2 GDP. This could change easily with two more months left to report in the second quarter.

The ISM Non-Manufacturing Index for May does not corroborate the weak employment data. In May, the ISM Non-Manufacturing Index increased from 55.5 to a solid 56.9, indicating moderate expansion for the bulk of the U.S. economy. The business activity, new orders and employment sub-indexes all improved and are all well above the break-even 50 mark. Anecdotal comments were generally positive, but did show concern about the impact of trade tariffs. Only the agriculture industry reported worsening conditions.

The ISM Manufacturing Index decreased from 52.8 in April to a still-positive 52.1 in May. This is the lowest reading for the index since October 2016. Momentum in the manufacturing sector has clearly dissipated since the recent high headline reading of 60.8 from last August. Six industries reported contraction in May.



For a PDF version of this report, click here: Comerica Economic Weekly, June 07, 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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May 2019 U.S. Employment

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

Weaker-Than-Expected Job Growth in May Puts Pressure on the Fed

•    Payroll Employment increased by just 75,000 jobs in May.
•    The Unemployment Rate for May was unchanged at 3.6 percent.
•    Average Hourly Earnings gained 0.2 percent in May and were up 3.1 percent for the year.
•    The Average Workweek was unchanged at 34.4 hours.

The official Bureau of Labor Statistics job count for May showed a weaker-than-expected gain of 75,000 jobs for the month. Today’s official jobs numbers come on the heels of the weak ADP Employment Report, issued on Wednesday, that showed a gain of just 27,000 net new private-sector jobs for the month. The unemployment rate remained at 3.6 percent for the month. Average hourly earnings were up a weak-to-moderate 0.2 percent in May and were up 3.1 percent over the previous 12 months. The tepid gain in wages reinforces the interpretation of the soft payroll numbers. The average workweek was unchanged at 34.4 hours. Revisions to March and April payrolls were negative, totaling -75,000 jobs for the two months.

Today’s job report is an important data point for the Federal Reserve heading into the upcoming FOMC meeting over June 18/19. As is often the case, the data is not conclusively good, nor conclusively bad. But it is bad enough to get the Fed focused on preparing for an eventual rate cut. Other recent employment-related data has been solid, including unemployment insurance claims through May and the May ISM surveys. Still, the weak ADP number and the weaker-than-expected BLS number for May, combined with the sizeable negative revisions for March and April payrolls are important considerations for the Fed. We will be issuing our June U.S. economic and interest rates forecasts on Monday. We expect to show at least one fed funds rate cut for this year, and possibly more.

The establishment data showed soft numbers in several smaller sectors. Mining and logging gained 1,000 net new jobs in May. Construction was up by just 4,000 jobs, which is weak. Manufacturing gained 3,000 jobs in May on net, weaker than recent gains. Wholesale trade employment was up by a solid 7,100. Retail trade showed a loss of 7,600 jobs. Transportation and warehousing was little changed, down 200 jobs in May. Information services gave up 5,000 jobs. Financials services was soft, gaining 2,000 jobs. Professional and business services posted a moderate gain of 33,000 net new jobs for the month. Education and healthcare also posted a moderate gain, up 27,000 jobs. Leisure and hospitality posted a solid gain of 26,000 jobs in May. Government employment was a wildcard. It declined by 15,000 jobs in May. Heading into the 2020 Census, we expect to see a temporary surge in government hiring. Prior to the 2010 Census, there was a surge of about 100,000 jobs in the spring of 2009, related to the 2010 Census. We have not yet seen a similarly timed surge for the upcoming Census. During the summer of 2010, government hiring surged again, by nearly 500,000 jobs for just a few months. This brought the unemployment rate down from about 10 percent to about 9.5 percent. We expect to see a similar surge in temporary government jobs next summer. But it will be very interesting to see if the hiring level is as strong as it was in the past. This is because the unemployment rate is so much lower now, 3.6 percent versus 10 percent. The federal government may have trouble finding enough temporary workers in the current very tight labor market.

Market Reaction: U.S. equity markets were up after the open. The 10-Year T-bond yield is down to 2.06 percent. NYMEX crude oil is up to $53.46/barrel. Natural gas futures are down to $2.32/mmbtu.

For a PDF version of this report, click here: May 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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April 2019 U.S. International Trade, May UI Claims

June 6, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Trade and Claims Data Positive Ahead of Important Jobs Report

•The U.S. Trade Gap narrowed in April, to -$50.8 billion, improving from March’s -$51.9 billion.
•Initial Claims for Unemployment Insurance remained at 218,000 for the week ending June 1.

International trade is a very complex space right now with multiple forces acting in different directions. The good news is that the nominal U.S. international trade gap narrowed slightly in April after widening in March.  New threats of tariffs and counter-tariffs will tend to keep total trade subdued, while the month-to-month data may be skewed by merchants seeking to front-load shipments ahead of new tariffs. Meanwhile, the strong U.S. dollar and weaker international demand remain headwinds for U.S. exports. Nominal exports dropped by $4.6 billion in April after increasing for three consecutive months. Exports of goods dropped by $4.4 billion with losses in civilian aircraft, automotive and consumer goods. Boeing’s problems with the 737 Max may be a factor. Year-to-date civilian aircraft exports are down moderately in 2019 compared to 2018. Nominal imports dipped by $5.7 billion as imports of goods decreased by $5.4 billion. After adjusting for price changes, the real trade balance in goods for April was below the first quarter average, suggesting that as of now, trade will be a moderate positive for Q2 GDP. This could change easily with two more months left to report in the second quarter.

Initial claims for unemployment insurance were unchanged at 218,000 for the week ending June 1. This is a good level, countering the concern about weakening labor markets raised by the disappointing ADP employment numbers for May. Tomorrow, we will see the official BLS employment numbers for May. We expect them to be stronger than the ADP numbers. Continuing claims gained 20,000 for the week ending May 25. This is well within the range of normal and should not cause alarm. 

We believe that the payroll number for May, to be released by the BLS tomorrow morning, is an important data point for the Federal Reserve. The Fed is under pressure from financial markets to cut the fed funds rate at least once this year. The fed funds futures market shows a strong implied probability for at least two 25 basis point rate cuts before the end of this year. Some forecasters are calling for three rate cuts by the Fed within the next nine months. Trade disruptions and cooler rest-of-world growth are key concerns. However, U.S. data is still looking solid for the most part. The May ISM Non-Manufacturing Index improved, and the Fed’s recent Beige Book, which discusses regional economic conditions from April through mid-May, was positive for almost all regions. A key exception to the recent positive data was the ADP employment data for May which showed a net gain of only 27,000 private-sector jobs for the month.  A moderately positive payroll number tomorrow, showing about 120,000 or more net new jobs for May would erase concerns about the labor market, and buy some time for the Fed to watch data and see how trade discussions are working out before committing to a new course of action. 

Market Reaction: U.S. equity markets gave up opening gains. The yield on 10-Year Treasury bonds is down to 2.10 percent. NYMEX crude oil is down to $51.51/barrel. Natural gas futures are down to $2.33/mmbtu.

For a PDF version of this report, click here: April 2019 U.S. International Trade, May 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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May 2019 ADP Jobs, ISM Non-MF, Mortgage Apps

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

Weak ADP Employment Report Lowers Expectations for May Payrolls

*     The ADP Employment Report for May showed an increase of just 27,000 private sector jobs.
*     The ISM Non-Manufacturing Index for May increased to a solid 56.9.
*     Mortgage Applications increased at the end of May as refi activity picked up.

The ADP employment report for May, which monitors private-sector job creation, was much weaker than expected, showing a net gain of just 27,000 private-sector jobs. The disappointing report lowers expectations for the official Bureau of Labor Statistics employment report for May, due out Friday morning. The weak ADP numbers do not necessarily signal an imminent slowdown in the U.S. economy. Occasionally, the series will slump and then bounce back due to data collection, weather and/or other anomalies. So we will be looking for other signals in the economy that either corroborate or refute the weak ADP report. According to ADP, small businesses (less than 50 employees) gave up 52,000 jobs in May. This is the worst monthly performance for small businesses this side of the Great Recession. Medium-sized businesses (50-499 employees) also showed weaker-than-expected job creation, gaining just 11,000 employees on net. This is also the weakest monthly performance for medium-sized businesses since the end of the Great Recession. Large businesses put up solid numbers in May, gaining a net 68,000 workers. The construction industry was a big drag on the ADP numbers, giving up 36,000 jobs in May. Natural resources and mining lost 4,000 jobs. Manufacturing lost a net of 3,000 workers. Information services gave up 3,000 and other services dropped 9,000. Because of today’s weak ADP report for May, we will lower our expectation for the BLS report to just 100,000 net new jobs in May. The ADP and BLS numbers are related but they are entirely different surveys, so they can diverge in any given month.

The ISM Non-Manufacturing Index for May does not corroborate the weak ADP employment report. In May, the ISM Non-Manufacturing Index increased from 55.5 to a solid 56.9, indicating moderate expansion for the bulk of the U.S. economy. The business activity, new orders and employment sub-indexes all improved and are all well above the break-even 50 mark. The only sub-index under 50 in May was supplier deliveries. Anecdotal comments were generally positive but did show broad concern about the impact of trade tariffs. Sixteen out of seventeen industries reported growth for the month. Only agriculture reported worsening conditions.

Total mortgage applications increased by 1.5 percent for the last week of May. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage fell to 4.23 percent. Refi apps gained 6.4 percent for the week. Despite the recent decline in mortgage rates, purchase apps fell by 2.4 percent, the fourth consecutive weekly decline. On a four-week moving average basis, refis are up 27.3 percent over a year ago. Purchase apps are up 4.9 percent over the last year.

Market Reaction: U.S. equity markets were mixed after the open. The yield on 10-Year T-bonds is down to 2.10 percent. NYMEX crude oil is down to $51.59/barrel. Natural gas futures are down to $2.39/mmbtu.

For a PDF version of this publication, click here: May 2019 ADP Jobs, ISM Non-MF, 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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May 2019 ISM Manufacturing Index, April Construction Spending

June 3, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. Manufacturing Index Eases, Still Showing Modest Expansion

*     The ISM Manufacturing Index for May decreased to a still-positive 52.1 percent.
*     Construction Spending for April was unchanged from May.

The ISM Manufacturing Index decreased from 52.8 in April to a still-positive 52.1 in May. This is the lowest reading for the index since October 2016. Momentum in the manufacturing sector has clearly dissipated since the recent high headline reading of 60.8 from last August. The loss of momentum in U.S. manufacturing parallels what we are seeing in many European and Asian economies as well. Seven out of ten sub-indexes were positive in May, including new orders, production and employment. Customers’ inventories remained in contraction mode, as did imports. Backlog of new orders fell into contraction mode for the first time since January 2017. Eleven of the eighteen industries reported growth in May. The six industries reporting contraction were apparel, primary metals, petroleum, wood, paper and fabricated metals. Anecdotal comments were mixed. Some industries are concerned about the impact of new trade tariffs imposed by the U.S. and China.

The total value of construction put in place in May was unchanged from April. Private residential construction declined by 0.6 percent for the month despite some help from new multifamily construction. Private nonresidential construction declined by 2.9 percent in April as most categories gave up ground. The value of public construction put in place increased by 4.8 percent in May.

While neither of today’s major U.S. economic releases are terrible, together they add to the concern that the U.S. economy lost momentum the second quarter. The Federal Reserve will look at the cooler U.S. data at the upcoming FOMC meeting over June 18/19. We expect the Fed to keep the fed funds rate range unchanged at 2.25-2.50 percent at its June meeting. Looking beyond June, the fed funds futures market is leaning noticeably toward an expectation of two fed funds rate cuts by the end of this year. Currently the implied odds of at least one 25 basis point rate cut this year stand at about 94 percent. The implied odds of at least two rate cuts are about 78 percent. We will be listening carefully to the fedspeak from the June FOMC meeting to hear if Fed officials think that they need to prepare financial markets for an upcoming rate cut.

Market Reaction: U.S. equity markets were mixed after the open. The yield on 10-Year Treasury bonds is down to 2.12 percent. NYMEX crude oil is up to $53.80/barrel. Natural gas futures are down to $2.41/mmbtu.

For a PDF version of this report, click here: May 2019 ISM Manufacturing Index, April Construction Spending

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, May 31, 2019

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

U.S. economic data this week was mixed. The mood at the end of the second quarter remains tentative since the U.S/China trade talks stalled and the prospects for a meaningful infrastructure bill in Congress appear to be dwindling.

Nominal personal income increased by 0.5 percent in April. After adjusting for taxes and inflation, real disposable personal income was up just 0.1 percent for the month. Real personal spending was unchanged in April after climbing 0.9 percent in March. The headline personal consumption expenditure price index was up 1.5 percent and core PCE (less food and energy) increased 1.6 percent in the 12 months ending in April.

The second estimate of 2019Q1 real GDP growth was revised down slightly to 3.1 percent. Corporate profits appear to be under pressure. Corporate profits for domestic industries fell by $54.6 billion in Q1, their second consecutive quarterly decline. It is not unusual, even in a healthy economy, to see corporate profits decline for 1 or 2 quarters. But a persistent decline in corporate profits can be a trip wire for the U.S. economy.

The estimate of international trade in goods shows a slight widening of the trade gap in April. This is consistent with our assumption that trade reverts to a small drag on the GDP in Q2. 

The Conference Board’s U.S. Consumer Confidence Index jumped by 4.9 points in May, to reach 134.1. This is near the peak levels from last fall. The index slumped through December and January during the federal government shutdown. Lower interest rates and improved confidence should be positives for housing, autos and other consumer spending.

Initial claims for unemployment insurance increased by 3,000 for the week ending May 25, to hit 215,000. This is still a very low number. Continuing claims fell by 26,000 for the week ending May 18, to hit 1,657,000.  

The Case-Shiller U.S. National Home Price Index for March shows that house price appreciation is weakening. The U.S. index was up 3.7 percent in March. Most of the key 20 cities are still showing moderate year-over-year gains, but California markets have clearly cooled. Las Vegas is at the top of the list showing an 8.2 percent year-over-year gain. San Diego and Los Angeles are at the bottom of the list, showing 1.3 percent year-over-year gains. 

Mortgage applications dipped by 3.3 percent for the week ending May 24. Purchase apps fell by 1.4 percent, their third consecutive weekly drop. Refi apps were off by 6.0 percent after gaining 8.3 percent the week before. On a four-week moving average basis, refi apps are still up 22.1 percent over the last year. Purchase apps are up 6.1 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage remained at 4.33 percent. 

We expect the Federal Reserve to leave the fed funds rate range unchanged at 2.25-2.50 percent at the next FOMC meeting over June 18-19. According to the fed funds futures market, the implied odds of a rate cut before the end of this year have increased to about 83 percent. There is no expectation of a rate hike this year according to the fed funds futures market. Fed Governor Richard Clarida said on Thursday that the Fed would be open to cutting rates if the economy sours. 

For a PDF version of this report, click here:  Comerica Economic Weekly, May 31, 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 Bank's Florida Index Unchanged

May 29, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s Florida Economic Activity Index went unchanged in March at a level of 115.7. March’s index reading is 17 points, or 17 percent, above the index cyclical low of 98.5. The index averaged 114.8 in 2018, 1.7 points above the average for all of 2017. February’s index reading was 115.7.

Comerica Bank’s Florida Economic Activity Index went unchanged in March, following four consecutive monthly gains. The index components were mixed for the month. Six of the nine components were positive in March. They included nonfarm employment, unemployment insurance claims (inverted), house prices, industrial electricity demand, hotel occupancy and total enplanements. The three negative components in March were housing starts, state total trade and state sales tax revenues. Our Florida Index took a pause in March, but the overall trend remains positive. The last time the index posted a negative month was back in February 2018. Florida has enjoyed 19 consecutive months of job growth through April. This year, job growth looks like it is cooling. Florida added 50,700 jobs in the first four months of 2019, moderating from the 70,400 jobs added over the same period in 2018. We expect the Florida economy to continue to show above average growth this year with real gross state product expanding by about 3 percent. Economic activity in Central Florida is heating up as Orlando continues to see strong population and job growth. Southern Florida is also expected to see solid growth this year. Miami Beach condo sales ticked up 14 percent in Q1. The Pan Handle continues to recover from Hurricane Michael. A stalled disaster aid package in Congress and declining job growth in the Panama City area may mean a slower economic recovery for the region.

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

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 is Mixed

May 29, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s Arizona Economic Activity Index decreased by 0.1 percent in March to a level of 113.7. March’s index reading is 14 points, or 14 percent, above the index cyclical low of 99.5. The index averaged 112.8 points for all of 2018, 1.8 points above the average for 2017. February’s index reading was 113.8.

Comerica Bank’s Arizona Economic Activity Index cooled slightly in March, after a moderate decline in February. The index components look more positive in March than the headline index value. Six of the nine index components increased for the month. They were nonfarm employment, unemployment insurance (inverted), housing starts, house prices, state total trade and total enplanements. The three negative index components were industrial electricity demand, hotel occupancy and state sales tax revenue. While Arizona economic activity was mixed in the first few months of 2019, one constant positive was the strength of the state’s labor market. Arizona added 23,300 jobs through April. This is slightly below the pace of hiring in early 2018, but it is still a solid number. Arizona unemployment insurance claims are also sitting at their lowest levels since early 2001. Travel and accommodations related data continues to be choppy, reflective of the early 2019 slowdown in tourism. The ongoing U.S. economic expansion will support more business and recreational travel into the state as we move later into 2019. Arizona’s housing outlook is also improving. Lower mortgage rates through May and positive net in-migration trends continue to support Arizona housing activity during the spring buying season. Phoenix home sales ticked up 13.8 percent in April, rising for the third consecutive month according to ARMLS.

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

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 Ticks Up

May 29, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s California Economic Activity Index increased 0.2 percent in March to a level of 123.8. March’s reading is 26 points, or 27 percent, above the index cyclical low of 97.8. The index averaged 124.0 points in 2018, 2.8 points above the average for all of 2017. February’s reading was 123.5.

Comerica Bank’s California Economic Activity Index improved in March, following four consecutive monthly declines through February. The index components were mixed in March. Three of the eight components were positive for the month. They included nonfarm employment, housing starts and Dow Jones Technology Index. Four of the eight components were negative including unemployment insurance (inverted), house prices, state total trade and hotel occupancy. Industrial electricity demand was unchanged. The California economy lost momentum in late 2018 according to our California Index. This was consistent with the official state GDP data which showed California GDP moderated from a 6.6 percent annualized rate in 2018Q2, to 1.2 percent in 2018Q3 and 2.2 percent in 2018Q4. Our index is indicating that California may see only moderate growth in early 2019 as well. Weaker housing data has weighed on our California Index in recent months. Housing starts have declined in nine of the last 12 months. House prices have also been mixed. San Francisco and Los Angeles house prices improved in February and March after sliding from November to January. San Diego house prices continued to see losses. State labor market data has also been a little softer so far this year. The pace of hiring remains positive, yet the tick up in California’s unemployment rate raises a caution flag about the strength of the state’s labor market in 2019.

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

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 Up Again

May 29, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s Texas Economic Activity Index grew 0.2 percent in March to 137.2. March’s index reading is 42 points, or 44 percent, above the index cyclical low of 95.5. The index averaged 134.5 points for all of 2018, 5.6 points above the average for 2017. February’s index reading was revised to 137.2.

The Comerica Bank Texas Economic Activity Index ticked up in March, registering its third consecutive monthly gain. The last time that the Texas Index declined was in July 2018. Over the last 12 months, the headline index is up 3.6 percent. The year-over-year gain appears to be on an improving trend after bottoming out in late 2018. In March, six out of nine index components were positive. They were nonfarm payrolls, house prices, industrial electricity demand, total state trade, hotel occupancy and state sales tax revenue. The negative factors were unemployment insurance claims (inverted), housing starts and the rig count. The strong performance of the Texas Index over the past two-and-a-half years indicates that the state has good momentum both in and out of the energy industry. Energy is a key economic driver for the state, but the majority of Texas economic activity is not directly related to the energy sector. We expect the state to continue to attract businesses and to attract new workers. We estimate population growth for the state to be around 1.4 percent this year, about double the national average pace. Strong demographic momentum will remain a tailwind for the state’s non-energy economy and spur growth in “people” industries. An example of that growth is seen in DFW Airport’s recent announcement that it will add a sixth terminal with 24 new gates as early as 2025.

For a PDF version of this report, click here: Comerica Bank’s Texas Index Up 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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Comerica Bank's Michigan Index Improves

May 29, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s Michigan Economic Activity Index increased 0.1 percent in March to a level of 117.6. March’s reading is 20 points, or 20 percent, above the index cyclical low of 97.9. The index averaged 118.4 points for all of 2018, 0.1 points above the index average for 2017. February’s index reading was 117.5.

Comerica Bank’s Michigan Economic Activity Index increased again in March after breaking a three-month decline in February. Despite the recent two-month gain, the Michigan Index still shows little upward momentum. Over the year ending in March, the Michigan Index is down by 0.8 percent. In March, five out of nine index components were positive. They were nonfarm employment, housing starts, house prices, total state trade, and hotel occupancy. The three negative components were unemployment insurance claims (inverted), industrial electricity demand and light vehicle production. State sales tax revenues were neutral for March. Continuing claims for unemployment insurance in Michigan increased for the three months ending in March. The April data, not included in the March index shows a welcome decrease. The other labor market indicator, nonfarm payrolls, has been positive for the seven consecutive months from last October through April. However, momentum in that series appears to be slowing. For the year ending in March, nonfarm payrolls in Michigan were up by just 0.6 percent. That was the weakest 12-month percent gain this side of the Great Recession. We expect the Michigan economy to keep expanding this year, but at a weak pace, consistent with the flat trend in our Michigan Index.

For a PDF version of this report, click here: Comerica Bank’s Michigan 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 Economic Weekly, May 17, 2019

May 17, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic data was mixed this week. Weaker-than-expected retail sales for April is a concern, but consumer sentiment for May appears to be improving. 

Nominal retail sales decreased by 0.2 percent in April. Motor vehicle and parts sales declined by 1.1 percent for the month. Estimated unit auto sales fell noticeably from a 17.5 million unit rate in March, to 16.4 million in April. Retail sales ex-auto inched up by 0.1 percent in April. Higher gasoline prices in April helped, boosting service station sales by 1.8 percent for the month. Other categories were mixed. Building materials sales dropped by 1.9 percent. 

According to the University of Michigan, consumer sentiment surged in early May. Also importantly, inflation expectations picked up. This bolsters the case for the Federal Reserve leaving the fed funds rates unchanged instead of making a pre-emptive rate cut. 

The Conference Board’s Leading Economic Index increased by 0.2 percent in April, its third consecutive monthly gain. Seven of the ten components were positive, led by stock prices. The Coincident Index increased by just 0.1 percent in April, while the Lagging Index declined by 0.1 percent. 

The National Federation of Independent Business’s Small Business Optimism Index increased in April to  the highest level this year at 103.5. This is still well below the recent high from last August which was 108.8.

Housing starts improved by more than expected in April, increasing by 5.7 percent to a 1,235,000 unit annual rate. Single-family starts improved, gaining 6.2 percent to an 854,000 unit rate. Multifamily starts improved for the third consecutive month, up by 4.7 percent in April to a 381,000 unit rate. Both series look like they are past their peaks for this cycle. Total permits for new residential construction were little changed in April, inching up by 0.6 percent to a 1,296,000 unit rate. 

U.S. industrial production declined by 0.5 percent in April. The biggest component, manufacturing, was also down by 0.5 percent. Manufacturing output has now been flat to down for the last four months. Total vehicle assemblies eased to a 10.58 million unit annual rate in April, the lowest rate since May 2018. Overall capacity utilization eased to 77.9 percent in April. Capacity utilization looks like it is past its peak for this cycle, which may prove to be the 79.6 percent from last November. 

Initial claims for unemployment insurance fell by 16,000 for the week ending May 11 to hit 212,000. This is near the low average for the last 12 months. Continuing claims fell by 28,000 for the week ending May 4 to hit a very low 1,660,000. 

Total mortgage applications eased by 0.6 percent for the week ending May 10. Purchase apps decreased by 0.6 percent after a stronger gain the week before. Refi apps fell by 0.5 percent after a moderate gain the week before. On a four-week moving average basis, refi apps are still up 13.3 percent over the past 12 months. Purchase apps are up 3.6 percent over the year. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage ticked down to 4.40 percent. 

We expect the Federal Reserve to leave the fed funds rate range unchanged at 2.25-2.50 percent at the next FOMC meeting over June 18/19. According to the fed funds futures market, the implied odds of a rate cut before the end of this year have increased to about 78 percent. We still think that the risk is weighted toward a rate cut, but a 78 percent probability is too high.

For a PDF version of this report, click here:  Comerica Economic Weekly, May 17, 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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April 2019 Housing Starts, May UI Claims

May 16, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Single-Family Starts Improve, Following New Home Sales Up

*     Housing Starts increased by 5.7 percent in April to a 1,235,000 unit annual rate.
*     Housing Permits inched up by 0.6 percent in April to a 1,296,000 unit annual rate.
*     Initial Claims for Unemployment Insurance for the week ending May 11 fell by 16,000 to hit 212,000.

Housing starts improved by more than expected in April, increasing by 5.7 percent to a 1,235,000 unit annual rate. Single-family starts improved, gaining 6.2 percent to an 854,000 unit rate. This is still well below the 966,000 unit rate from January, but it represents the second consecutive monthly gain for that category. Single-family starts look like they are following the improving trend in new home sales this year, which were boosted by declining mortgage rates. The rate for a 30-year fixed-rate mortgage declined significantly, from a high of 5.17 percent in early November 2018, down to 4.36 percent by late March 2019 according to the Mortgage Bankers Association. That push may soon run its course. Since late March, mortgage rates have stabilized at around 4.45 percent. Multifamily starts improved for the third consecutive month, up by 4.7 percent in April to a 381,000 unit rate. Both series look like they are past their peak unit rates. Single-family starts likely peaked in this cycle in early 2018, near a 900,000 unit rate. Multifamily starts look like they peaked from late 2015 through early 2017 at about a 400,000 unit rate. Total permits for new residential construction were little changed in April, inching up by 0.6 percent to a 1,296,000 unit rate. Single-family permits fell by 4.2 percent to a 782,000 unit rate, continuing the downtrend visible since last December. Multifamily permits gained 8.9 percent, reaching a 514,000 unit rate. The relationship between single-family permits and single-family starts remains fairly tight. However, the gap between multifamily permits and multifamily starts appears to be gradually widening. The wider gap is visible through 2017 and 2018. This could be a function of data collection. It could also indicate that there is some potential for an increase in multifamily construction that would narrow the gap between permits and starts back to historical norms.

Initial claims for unemployment insurance fell by 16,000 for the week ending May 11 to hit 212,000. This is near the low average for the last 12 months. Continuing claims fell by 28,000 for the week ending May 4 to hit a very low 1,660,000.

The continued very low unemployment insurance claims this spring speak to the strength of the U.S. economy. A strong labor market, supporting healthy consumer spending, is a stabilizing force for the economy. Even though other U.S. data has been choppy since late last year, labor-related data has remained firm for the most part. We believe that this stabilizing force will be a dominant characteristic of the U.S. economy this year.

Market Reaction: Stock indexes opened with gains. The yield on 10-year Treasury bonds is up to 2.41 percent. NYMEX crude oil is up to $63.47/barrel. Natural gas futures are up to $2.64/mmbtu.

For a PDF version of this report, click here: April 2019 Housing Starts, May 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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April 2019 Retail Sales

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

Auto Sales Cooled in April

•    Retail Sales decreased by 0.2 percent in April and are up 3.1 percent over the previous year.
•    Industrial Production declined by 0.5 percent in April as manufacturing output dropped.
•    Mortgage Applications eased by 0.6 percent for the week ending May 10.

April was another weak month for retail sales. The pattern in month-to-month changes in nominal retail sales has been a zig-zag lately. December was weak. January was strong. February was weak. March was very strong. Now April is weak again. Some of the pattern is due to rising gasoline prices over the past few months. Some is due to a gradual declining pattern in auto sales. But there is another broad weight on shoppers. After posting strong year-over-year gains through 2018, yearly growth in nominal retail sales is looking softer in 2019. This coincides with a step down in consumer confidence that began in December. We expect the recent rupture in the U.S./China trade talks, and the associated increase in tariffs on both sides, to have a negative impact on consumer confidence for May and this could be another weight on consumer spending in the second quarter. Nominal retail sales decreased by 0.2 percent in April. Motor vehicle and parts sales declined by 1.1 percent for the month. Estimated unit auto sales fell noticeably from a 17.5 million unit rate in March, to 16.4 million in April. Retail sales ex-auto inched up by 0.1 percent in April. Higher gasoline prices in April helped, boosting service station sales by 1.8 percent for the month. Other categories were mixed. Building materials sales dropped by 1.9 percent. Department store sales gained 0.7 percent in April.

U.S. industrial production declined by 0.5 percent in April. The biggest component, manufacturing, was also down by 0.5 percent. Manufacturing output has now been flat to down for the last four months. The above-mentioned pattern in auto sales is keeping a lid on auto production. Total vehicle assemblies eased to a 10.58 million unit annual rate in April, the lowest rate since May 2018. Production in aerospace transportation equipment also declined in April. We cannot say that that is directly attributable to Boeing’s problems with the 737 Max, but it may be a significant factor for that industry segment in the months to come. Output in mining increased by 1.6 percent in April, reversing a three-month slide. Utility output dropped by 3.5 percent in April. Overall capacity utilization eased to 77.9 percent in April. Capacity utilization looks like it is past its peak for this cycle, which may prove to be the 79.6 percent from last November.

Total mortgage applications eased by 0.6 percent for the week ending May 10. Purchase apps decreased by 0.6 percent after a stronger gain the week before. Refi apps fell by 0.5 percent after a moderate gain the week before. On a four-week moving average basis, refi apps are still up 13.3 percent over the past 12 months. Purchase apps are up 3.6 percent over the year. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage ticked down to 4.40 percent.

Market Reaction: Equity markets are gaining at mid-day. The 10-year Treasury yield is down to 2.38 percent. NYMEX crude oil is up to $62.01/barrel. Natural gas futures are down to $2.61/mmbtu.

For a PDF version of this report, click here: April 2019 Retail 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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May 2019 Texas Economic Outlook

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

Texas Positioned for Growth in 2019

The Texas economy is poised to have another good year in 2019, supported by higher oil prices and a solid Houston metro area economy. Houston represents about one-fourth of all employment in Texas, and Houston will be a complex story in 2019. The area economy has recovered from the devastating flooding associated with Hurricane Harvey in 2017. Higher oil prices this year will support growth in Houston’s important energy sector. Organic growth for Houston, driven by strong population expansion, is also a significant economic driver for the state. However, even with higher energy prices, Houston faces the unwind of a period of robust expansion in its petrochemical industry. We expect year-over-year job growth in the Houston metro area to remain well above the U.S. average, but it will ease from near 2.5 percent as of March. The Austin metro area will also be an important part of the Texas story in 2019. For much of the past 30 years, Austin has been the fastest growing of the big four Texas metro areas. But through the first quarter of 2019, both Houston and Dallas-Ft. Worth are showing stronger year-over-year job growth than Austin. San Antonio currently trails the group posting 2.0 percent year-over year job growth in March, which is still above the U.S. average of 1.7 percent. The state economy will continue to benefit from the development of Permian Basin oil reserves in West Texas. Development has been hampered by a pipeline bottleneck that will ease this year. The consolidation of Permian Basin production by major oil companies will be a stabilizing force for the state economy.

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

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

Michigan’s Schumpeter Moment

Joseph Schumpeter was the Austrian economist who popularized the term “creative destruction.” Schumpeter used the term to describe how an economy evolves through the business cycle. Some parts of the economy are lost at the end of the old business cycle as new parts are created that propel the economy forward in the new expansion. Michigan’s automobile industry is in the midst of Schumpeterian creative destruction. As the auto industry evolves at an increasing pace, there will be significant churn in the Michigan economy. It is obvious that vehicle assemblers will need to change systems as automobile technology evolves away from its reliance on the internal combustion engine. The rise of China as a global economic power may also require the Detroit Big Three to evolve from industry leaders to industry followers in at least some aspects of automobile production and sales. As new vehicle platforms are developed, there will be a push to significantly reduce the labor-hours needed to assemble a vehicle and this will have implications for Michigan’s labor market. Workers will need to be nimble and trainable. Fortunately, new production, mechanical and software systems will also create new jobs for Michigan’s workforce. Parts suppliers will need to be nimble. If all electric vehicles end up dominating the market, entire systems, such as engine transmissions, will go the way of the horse and buggy. Michigan’s Schumpeter Moment will not hit all at once. But it is in fact already happening and it will continue to have a profound impact on the state for many years to come. It may be more accurate to say that many parts of the Michigan economy are at the start of a Schumpeter decade. The UAW contract negotiations this year may be particularly contentious as both sides try to navigate the churning environment.

For a PDF version of this report, click here: May 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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May 2019 Florida Economic Outlook

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

Central Florida Pushes the State Economy

Florida economic data continues to show a shift in momentum from Southern Florida to Central Florida in early 2019. Driving this shift is the change in locational preference for both new Floridians and new businesses. The Miami-Fort Lauderdale-West Palm Beach metropolitan area remained a top 10 most populous region in the U.S. in 2018. However, the strongest population growth in the state from 2017 to 2018 was in the Central Florida region. The Orlando-Kissimmee-Sanford metropolitan area added 60,045 people in 2018, making it the fifth fastest growing metropolitan area in the U.S. last year. Tampa-St. Petersburg-Clearwater added 51,438 people, enough to be in ninth place for major metropolitan areas in 2018. The relative affordability of Central Florida is helping to boost the area’s commercial and residential real estate markets. According to Cushman and Wakefield, the office space vacancy rate in Miami ticked up from 12.1 percent in 2018Q1 to 13.3 percent in 2019Q1. However, Tampa saw only a minor increase in office vacancy rates from 11.3 percent to 11.5 percent and Orlando declined from 9.5 percent to 9.1 percent in the same time frame. The difference in home price appreciation could also be seen across the three areas. Tampa led the way in home price appreciation last year, up 9.4 percent in 2018. Orlando saw home prices tick up 9 percent, while Miami grew a decent 6.7 percent in 2018. We expect Central Florida to continue to see positive momentum in 2019. Yet, rising home prices and rent costs will begin to eat into affordability this year. The Florida economy as a whole is looking good so far this year anchored by solid job growth and rising incomes. The state is also well positioned to benefit from an overall moderately growing U.S. economy in 2019.

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

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

California Cooling

Economic data released for the first quarter is consistent with a moderate expansion for the California economy at the start of the year. California GDP has grown at or above 3 percent since 2013. However, there are signs that some of the major economic drivers are cooling. The state added 51,300 jobs in Q1. This is about half the job gains seen in 2018Q1, and the slowest start to the year since 2016. While we expect job growth to pickup in Q2, the overall trend in the pace of hiring will be slightly weaker in 2019 than in 2018. California has also seen a slowdown in the residential housing sector. Both single-family and multifamily housing starts have been on a downward trend since early 2018. In the near-term lower mortgage rates may be able to help stabilize new home construction this year. However, the longer run trends of low affordability and net outflow of people from the state are more difficult to overcome. Home prices across the state’s major metropolitan areas are increasing at the slowest rates since turning positive in 2012. The year-over-year change in the Case Shiller Home Price Index for Los Angeles was up 1.8 percent, San Francisco was up 1.3 percent and San Diego was up 1.0 percent in February. Ongoing trade tension between the U.S and China is a major risk factor for the California’s trade sector. Combined imports for the Ports of Long Beach and Los Angeles were up just 0.8 percent while exports were down by 8.9 percent from a year ago in April. The Trump Administration implemented additional tariffs on $200 billion worth of Chinese goods on May 10 and the Chinese government has threatened retaliatory tariffs in response.

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

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

Sunny Outlook for Arizona’s Economy

The Arizona economy ended 2018 on a strong note with GDP growth up 3.4 percent in Q4. For the full year 2018, Arizona GDP was up 4.0 percent, making Arizona the fourth fastest growing state economy in the U.S. last year. Job growth slowed somewhat in the first quarter of 2019 as employment in accommodations and food services declined by 2,300 jobs in Q1. The state’s important tourism industry was hurt in Q1 by bad weather and by the longest ever federal government shutdown. The closure of national parks and recreation facilities may have spilled over to state parks as well, which posted year-over-year declines in visitations in January and February. However, Arizona continues to be well positioned to benefit from an ongoing expansion of the overall U.S. economy this year. Arizona tends to benefit from its low cost of living and business friendly environment as the overall U.S. economic expansion matures. Strong inflows of people and businesses are driving up real estate demand in the Phoenix area. RealPage noted that Phoenix area apartment rental prices were up 7.4 percent in 2018 which was about two times the national average. Apartment occupancy for the Phoenix area was at 95.4 percent last year. Office space is also seeing a boost from the inflow of businesses. According to Colliers International, the Phoenix market saw net absorption of office space climb to 850,000 square feet in Q1. This was enough to push the Phoenix office market vacancy rate down to 13.6 percent. Industrial space, which includes warehousing and manufacturing, saw the vacancy rate tighten to a low 7.2 percent in Q1.

For a PDF version of this report, click here: May 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, May 10, 2019

May 10, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic data remains consistent with an ongoing moderate GDP expansion in the second quarter of 2019. 

Inflation readings were well contained in April even with higher energy prices this spring. The Producer Price Index for final demand increased by a moderate 0.2 percent in April. Over the previous 12 months, PPI for final demand was up by 2.2 percent. The core index for PPI (less foods, energy and trade) was a little warmer in April, gaining 0.4 percent for the month. Over the previous 12 months, core PPI was also up by 2.2 percent. 

The Consumer Price Index increased by 0.3 percent in April. The energy sub-index gained 2.9 percent for the month. Over the previous 12 months, CPI was up 2.0 percent. Core CPI (less food and energy) increased a modest 0.1 percent in April. Over the previous 12 months, Core CPI was up 2.1 percent. 

Labor data continues to look good. The Job Openings and Labor Turnover Survey for March showed an increase in the job openings rate to 4.7 percent. The hiring rate was unchanged for the month at 3.8 percent. The quits rate remained high at 2.3 percent, where it has been since last November. A high quits rate is consistent with a strong labor market. 

Initial claims for unemployment eased by 2,000 for the week ending May 4, to hit 228,000. We have seen some extra volatility in the initial claims data since the end of last November. The series looks like it is centered around 220,000-225,000, which is a very good level for the U.S. economy. Continuing claims increased by 13,000 for the week ending April 27, to hit 1,684,000, still a very low number. 

The U.S. international trade deficit widened slightly in March to -$50.0 billion. March exports increased by $2.1 billion, while imports increased by $2.8 billion. The March trade data implies a slight negative revision to first quarter GDP if all else remains unchanged. 

It appears that a rift is opening up in the U.S.-China trade talks. The uncertainties around the trade talks with China may reinforce volatility in the trade data. Volatile trade data may end up being a lever on GDP growth again this year. Even with the possibility of trade deals with China and others, U.S. exporters face the headwind of a strong dollar. 

Total mortgage applications increased by 2.7 percent for the week ending May 3. Purchase apps rebounded by 4.2 percent after sliding the previous two weeks. Refi apps were up by 0.8 percent, ending a four-week slide. On a four-week moving average basis, refi activity is still up 15.9 percent from a year ago. Purchase apps are up 3.8 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage ticked down to 4.41 percent in early May. 

Railcar loadings were up by 0.5 percent for the week ending May 4, and are up by 1.0 percent over previous 12 months. 

The Federal Reserve is showing no signs of losing “patience” as it prepares for the next Federal Open Market Committee meeting over June 18-19. We expect the Fed to leave the fed funds rate unchanged for the remainder of this year. According to the fed funds futures market, the implied probability of no change to the fed funds rate in June is 90 percent. The market still thinks that the odds of a rate cut by the end of this year are significant, at about 60 percent. For now, we will maintain our flat-line fed funds rate forecast. 

For a PDF version of this report, click here:  Comerica Economic Weekly, May 10, 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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May 2019 U.S. Economic Outlook

May 6, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

It’s Complicated...

    U.S. economic data are indicative of a somewhat nuanced U.S. economy. GDP growth in the first quarter of 2019 was much stronger than we anticipated, however, some of the underlying data was weak. April job growth was also stronger than expected, yet two major indexes capturing much of the U.S. economy declined in April.

    Real GDP increased at a 3.2 percent annualized rate in Q1. Three out of the last four quarters have posted real GDP growth above 3.0 percent, buoyed by the tax reform of early 2018. When we look at the components of Q1 GDP, the message is more complicated. Several important components of GDP were weak in Q1. Real consumer spending was soft, increasing at a 1.2 percent annualized rate, well below the 3.3 percent average of the previous three quarters. Real business fixed investment (excluding inventories) increased at a modest 2.7 percent annualized rate, the second weakest expansion in that category over the last nine quarters. Real residential investment continued to slide, contracting at a 2.8 percent annualized rate. Residential investment has declined for five consecutive quarters. Real federal government spending, which was very strong from 2017Q4 through 2018Q3, was unchanged in 2019Q1.

    The components that pushed headline Q1 GDP stronger than expected in Q1 all showed unsustainable growth. The U.S. international trade gap narrowed considerably in Q1, adding just over 1 percentage point to headline real GDP growth. Trade flows have been very lumpy recently as companies schedule shipments with one eye on the timing of new tariffs. Even with an unratified trade deal in place for Canada and Mexico, and a U.S.-China trade deal imminent, U.S. trade faces the twin headwinds of a strong dollar and a softer global economy. We expect the trade gap to revert to being a small drag on U.S. GDP very soon. Inventory accumulation added about 0.7 percentage points to headline real GDP growth in Q1. Inventories have been building up strongly over the last three quarters. Boeing’s recent problems have added to inventory accumulation. Automakers are also building their inventories in anticipation of a potential contract dispute with the UAW later this year. We expect inventory accumulation to flip from a positive for GDP back to a negative soon. Finally, real state and local government spending was unusually strong in Q1, increasing at an unsustainable 3.9 percent annualized rate.

    Most labor-related data looks strong after payroll job growth faltered in February. U.S. payrolls increased by just 56,000 net new jobs in February, the weakest monthly gain since September 2017. March payrolls bounced back, showing a solid 189,000 job gain. April payrolls surged, up 263,000, while the unemployment rate fell to 3.6 percent, the lowest rate since December 1969.
    Both the ISM Manufacturing Index and the ISM Non-Manufacturing Index declined in April and have been on a declining trend since late 2018. Fortunately, both indexes remained above 50 in April, indicating improving conditions. However, the pace of improvement for these broad-reaching indexes has clearly cooled.

    Separating the transitory from the fundamental is a key challenge in this complex economic environment. Adding to the complexity is the challenge facing the Federal Reserve. How the Fed executes monetary policy and how it thinks about inflation are both in question by monetary policy theorists. Inflation has been cooler than expected. The core-PCE price index showed a 1.6 percent year-over-year gain in March, and has been running below the Fed’s 2 percent target since last August. We still expect the fed to keep the fed funds rate range unchanged at 2.25-2.50 percent through the remainder of this year.

For a PDF version of this report, click here: May 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, May 3, 2019

May 3, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic data at the beginning of May was generally positive, but mixed. Labor data continues to shine after a weak February, but both ISM indexes eased to still-positive levels. 

Payroll job growth in April was stronger than expected, with a net gain of 263,000 jobs. The unemployment rate fell to 3.6 percent due to a large 490,000 worker drop in the labor force. The April unemployment rate is the lowest since December 1969. Average hourly earnings were up 6 cents, or 0.2 percent for the month. Over the last year, average hourly earnings were up by 3.2 percent.

The ISM Non-Manufacturing Index for April declined to 55.5, down from 56.1 in March. All 10 sub-indexes remained in positive territory, consistent with a moderate economic expansion in early Q2. All 15 industries reported growth in April including professional, scientific and technical services, health care, mining and educational services. Anecdotal comments included concerns about labor shortages in the health care industry, price pressures coming from rising minimum wages and price pressures on some food products.

The ISM Manufacturing Index eased in April to a still-positive 52.8 percent, down from 55.3 in March. Seven out of ten sub-indexes were positive in April, including new orders, production and employment, but all three of those categories saw slowing activity. New orders fell from a strong 57.4 in March to 51.7 in April, still positive but close to the break-even 50 mark. The sub-indexes for customers inventories, new export orders and imports were all below 50. Thirteen out of eighteen industries reported expansion in April. The five industries reporting contraction were apparel, leather and allied products, primary metals, wood products, petroleum and transportation equipment. Anecdotal comments were mostly positive, some cited concerns about the U.S.-Mexico border situation. 

Nonfarm business productivity increased at a strong 3.6 percent annual rate in the first quarter of 2019. This is the strongest gain in output per hour per employee since 2014Q3. Productivity growth has been weak by historical standards through the current economic expansion. Weak productivity growth means that wage increases have more inflationary potential, and this has kept the Fed focused on wage gains and the potential for inflation.

Total construction spending in March fell by 0.9 percent, weighed down by a 1.8 percent monthly decline in spending on private residential projects. Spending on private nonresidential projects increased by 0.5 percent. Total public construction was off by 1.3 percent despite a reported surge in state and local government spending in the first quarter GDP data. 

Total mortgage applications fell for the fourth consecutive time in the week ending April 26, following a strong run through March. Purchase apps were down by 3.7 percent for the week, after losing 4.1 percent the week before. Refi apps were down by 5.0 percent for the week, their fourth consecutive weekly decline. On a four-week moving-average basis, refi apps are still up by 23.2 percent from a year ago. Purchase apps are up 5.6 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage eased to 4.42 percent at the end of April, still above the late-March low of 4.36 percent.

The S&P CoreLogic Case-Shiller U.S. National Home Price Index increased by 4.0 percent in February over the previous 12 months.

For a PDF version of this report, click here:  Comerica Economic Weekly, May 3, 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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April 2019 U.S. Employment, ISM Non-MF, Q1 Productivity

May 3, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Strong Job Growth in April

*     Payroll Employment increased by a strong 263,000 jobs in April.
*     The Unemployment Rate for April fell to 3.6 percent.
*     The ISM Non-Manufacturing Index for April decreased to 55.5.
*     U.S. Productivity Growth increased to a strong 3.6 percent in the first quarter of 2019.

The February lull in job growth, now reported at +56,000 for the month, is behind us with two months of solid job gains since then. March payroll job growth has been revised to +189,000. Payroll job growth in April was stronger than expected, with a net gain of 263,000 jobs. The unemployment rate fell to 3.6 percent due to a large 490,000 worker drop in the labor force. The April unemployment rate is the lowest since December 1969. Average hourly earnings were up 6 cents, or 0.2 percent for the month. Over the last year, average hourly earnings are up by 3.2 percent. Strong employment growth counterweights cooler-than-expected inflation data in the Federal Reserve’s monetary policy calculation.

Manufacturing industries added a net 4,000 jobs in April. Mining and logging subtracted 3,000. Construction employment was up a strong 33,000 net new jobs for the month. Wholesale trade employment increased by 9,900 jobs. Retail trade continues to restructure, dropping 12,000 jobs in April. Employment in transportation and warehousing increased by 11,100 jobs. Information services subtracted 1,000 jobs in April. Financial activities added 12,000. Professional and business services added a strong 76,000 net new jobs in April. Education and healthcare employment increased by 62,000 jobs. The leisure and hospitality sector gained 34,000 jobs for the month. Government employment increased by a very strong 27,000 in April.

The ISM Non-Manufacturing Index for April declined to 55.5, down from 56.1 in March. This is well below the September peak of 60.8. All 10 sub-indexes remained in positive territory, consistent with a moderate economic expansion in early Q2. All 15 non-manufacturing industries reported growth in April including professional, scientific and technical services, health care, mining and educational services. Anecdotal comments included concerns about labor shortages in the health care industry, price pressures coming from rising minimum wages and price pressures on some food products.

Nonfarm business productivity increased at a strong 3.6 percent annual rate in the first quarter of 2019. This is the strongest gain in output per hour per employee since 2014Q3. Productivity growth has been weak by historical standards through the current economic expansion. Weak productivity growth means that wage increases have more inflationary potential, and this has kept the Fed focused on wage gains and the potential for inflation.

Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is up to 2.54 percent. NYMEX crude oil is up to $62.34/barrel. Natural gas futures are down to $2.56/mmbtu.

For a PDF version of this report, click here: April 2019 U.S. Employment, ISM Non-MF, Q1 Productivity

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 Improves

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

Comerica Bank’s Florida Economic Activity Index increased by 0.1 percent in February to a level of 115.7. February’s index reading is 17 points, or 17 percent, above the index cyclical low of 98.5. The index averaged 114.8 in 2018, 1.7 points above the average for all of 2017. January’s index reading was 115.6.

The Comerica Bank Florida Economic Activity Index increased for the fourth consecutive month in February. The Florida Index has not declined since March 2018. Over the 12 months ending in February the Florida index has increased by 1.1 percent, consistent with weak-to-moderate state GDP growth. While Florida’s recent growth has been steady, it has not been strong compared with 2014 and 2015. In February, six out of nine index components were positive. They were nonfarm employment, unemployment insurance claims (inverted), house prices, total state trade, hotel occupancy and enplanements. Housing starts, industrial electricity demand and state sales tax revenues were negatives for the month. Florida’s housing markets were subdued over the winter. Single-family home sales for the state were unchanged in March 2019 compared with March 2018. The median time to contract increased by 16.7 percent to 49 days over that time period. In addition to flat sales, the inventory of active listings has increased by 9.6 percent over the year, according to FloridaRealtors. Lower mortgage rates will help to support Florida’s home sales this spring, but we do not expect to see a fundamental shift in demand in this very long housing market cycle. Year-over-year growth in construction employment is starting to wind down, consistent with our expectations for cooler state GDP growth this year.

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

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

Comerica Bank’s Arizona Economic Activity Index decreased by 0.1 percent in February to a level of 113.8. February’s index reading is 14 points, or 14 percent, above the index cyclical low of 99.5. The index averaged 112.8 points for all of 2018, 1.8 points above the average for 2017. January’s index reading was revised to 113.9.

The Comerica Bank Arizona Economic Activity Index moderated slightly in February, after going unchanged in January. The index components were split between gains and losses in February, with four of the nine index components positive for the month. The positive factors were nonfarm employment, unemployment insurance (inverted), house prices and industrial electricity demand. Four index components were negative in February including housing starts, state total trade, hotel occupancy and state sales tax revenue. Total enplanements were unchanged. Our Arizona Index shows that that the Arizona economy lost a little momentum at the beginning of 2019. According to the Arizona Office of Tourism, state park visitations were down 12.8 percent from a year ago in February. Also, the state’s housing sector was negatively impacted by rising mortgage rates through late 2018. Home sales fell from May 2018 through January 2019, according to ARMLS. Lower mortgage rates at the start of the year encouraged opportunistic buying in February and March, but we do not expect to see a fundamental shift in demand for Arizona housing due to lower mortgage rates this spring. Our Arizona Index is up 1.5 percent over the 12 months ending in February. This is consistent with a moderate economic expansion for the state. We expect the Arizona economy to continue to improve in 2019 anchored by steady job gains and population growth.

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

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 Increases

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

Comerica Bank’s Texas Economic Activity Index grew 0.2 percent in February to 136.8. February’s index reading is 41 points, or 43 percent, above the index cyclical low of 95.5. The index averaged 134.5 points for all of 2018, 5.6 points above the average for 2017. January’s index reading was revised to 136.5.

The Comerica Bank Texas Economic Activity Index increased again in February after reversing a one-month slide in December. For the year ending in February, the Texas index is up by 2.9 percent, still-positive, but well below the 5.4 percent year-ago gain from last August. We expect Texas to continue to show above-average growth in 2019, but it will not be as strong as it was in 2018. In February, five out of nine index components were positive. They were nonfarm employment, house prices, industrial electricity demand, hotel occupancy and state sales tax revenues. The negatives came from unemployment insurance claims (inverted), housing starts, rig count and total state trade. The rig count was the biggest drag for the month. We expect strong crude oil prices this spring to help level out the Texas rig count. The count slid from around 535 active rigs through the second half of 2018, to 491 rigs at the end of March. Major oil companies continue to buy into the Permian Basin shale production as shown by the competition for Anadarko Petroleum by Occidental and Chevron. The larger companies will add to the stability of the region, which has undergone explosive growth due to the development of shale reservoirs. We expect economic conditions in West Texas to show consistent improvement as more infrastructure, permanent housing facilities, retail space and government offices are built to accommodate a permanent gain in the workforce.

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

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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