Comerica Economic Weekly, April 19, 2019

April 19, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Recent U.S. economic data for February and March has been more positive following a soft patch that extended from the fourth quarter of 2018 into the first quarter of 2019. Because of the improved data we now believe that Q1 real GDP growth will still be weak, but likely not as weak as our April forecast where we show just 0.6 percent real GDP growth. We could add about 0.5-1.0 percent to Q1 real GDP growth based on improved data. Conversely, with a slightly stronger Q1, we would shave off about the same amount from the rebound we show in Q2. 

In addition to marginally stronger Q1 GDP growth, we believe that the likelihood of a U.S. recession in the next 12 months has declined, but remains elevated above a baseline level of about 15 percent. We currently place the odds of a U.S. recession within the next 12 months at about 30 percent. 

The Conference Board’s Leading Economic Index for March increased by 0.4 percent. This is the strongest reading for the Leading Index since last September. Eight out of ten factors were positive for the Leading Index in March. The biggest positives were unemployment insurance claims (inverted), consumer expectations for business conditions and the Leading Credit Index. 

Retail sales were strong in March, increasing by 1.6 percent for the month after a soft February, when sales declined by 0.2 percent. A rebound in vehicle sales and higher gasoline prices both helped in March. 

Housing starts for March eased by 0.3 percent, to a 1,139,000 annual unit rate. Both single and multifamily starts dipped for the month. Permits for new construction decreased by 1.7 percent, to a 1,269,000 annual unit rate. We expect lower mortgage rates to stimulate sales this spring, adding motivation for builders. 

Initial claims for unemployment insurance fell by 5,000 for the week ending April 13, to hit an ultra-low 192,000, extending the declining trend that started in mid-March. This is the lowest initial claims level since September 1969. Continuing claims fell by 63,000 for the week ending April 6, to hit 1,653,000. The continuing claims data is now back on par with the ultra-low levels from last October. 

The U.S. trade gap narrowed to -$49.4 billion in February. Exports of goods increased by $2.1 billion in February, while exports of services gained $0.2 billion. Imports of goods increased by $0.9 billion, while imports of services dropped by $0.3 billion. The average of the real trade balance of goods in January and February is below the average for the fourth quarter of 2018, implying that trade will be a positive for first quarter GDP. 

Mortgage applications dropped for the second week in mid-April after a strong run through March. The Mortgage Bankers Association’s Composite Index declined by 3.5 percent for the week ending April 12. Purchase apps gained 0.9 percent, extending their winning streak to six consecutive weeks. Refis fell by 8.2 percent, their second consecutive loss. On a four-week moving average basis, refis are up 33.5 percent over year-ago levels. Purchase apps are up 8.2 percent over the last 12 months. According to the MBA, the rate for a 30-year fixed-rate mortgage notched up to 4.44 percent. 

Total rail traffic was well down in Q1 on a year-ago basis. Data in early April is looking more positive. We expect the Federal Reserve to remain “patient” at the April 30/May 1 meeting and keep the fed funds rate unchanged from the current 2.25-2.50 percent.

For a PDF version of this report, click here:  Comerica Economic Weekly, April 19, 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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March 2019 Retail Sales, Leading Economic Index, April UI Claims

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

Data Looking More Positive Heading into Q2

*     Retail Sales increased by 1.6 percent in March and are up 3.6 percent over the previous year.
*     The Conference Board’s Leading Economic Index increased by 0.4 percent in March.
*     Initial Claims for Unemployment Insurance fell by 5,000 for the week ending April 13, to hit 192,000.

After limping through the end of last year and into the first quarter of this year, U.S. economic data is looking more positive for March and April. Retail sales were strong in March, increasing by 1.6 percent for the month after a soft February, when sales declined by 0.2 percent. A rebound in vehicle sales and higher gasoline prices both helped in March. Light vehicle sales increased from a 16.6 million unit pace in February, to 17.5 million in March. The dollar value of vehicle and parts sales in March increased by 3.1 percent. Gasoline station sales were up by 3.5 percent. Most other sales categories were positive for the month. Other positives for March include the end of the government shutdown and improved home sales due to lower mortgage rates.

Some of the gain in nominal retail sales is due to higher gasoline prices, but not all of it. We view today’s retail sales data as a positive for Q1 GDP. Yesterday we saw another positive for Q1 GDP in the better-than-expected U.S. trade balance for February.

The Conference Board’s Leading Economic Index for March increased by 0.4 percent. This is the strongest reading for the Leading Index since last September. Eight out of ten factors were positive for the Leading Index in March. The biggest positives were unemployment insurance claims (inverted), consumer expectations for business conditions and the Leading Credit Index. Average weekly manufacturing hours and building permits were little changed in March. The Coincident Index was up by 0.1 percent in March, matching its February gain. The Lagging Index was also up by 0.1 percent. When all three indexes increase for the month that is a broad positive indicator for the U.S. economy.

Initial claims for unemployment insurance fell by 5,000 for the week ending April 13, to hit an ultra-low 192,000, extending the declining trend that started in mid-March. This is the lowest initial claims level since September 1969. Continuing claims fell by 63,000 for the week ending April 6, to hit 1,653,000. The continuing claims data is now back on par with the ultra-low levels from last October.

Market Reaction: Equity markets opened with losses. The 10-year Treasury yield is down to 2.55 percent. NYMEX crude oil is up to $63.78/barrel. Natural gas futures are down to $2.48/mmbtu.

For a PDF Version of this report click here: March 2019 Retail Sales, Leading Economic Index, April 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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February 2019 U.S. International Trade, April Mortgage Apps

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

Trade Shaping Up to be a Much Needed Positive for Q1 GDP

*     The U.S. Trade Gap narrowed in February, to -$49.4 billion, improved from January’s -$51.1 billion.
*     Mortgage Apps for the week ending April 12 dropped by 3.5 percent.

The nominal U.S. international trade gap narrowed for the second consecutive month in February after widening significantly last December. The trade data has been somewhat choppy lately as companies try to maneuver ahead of the new regime of trade tariffs. The U.S. trade gap typically widens through an expansion cycle as consumer appetite for cheaper foreign-produced goods increases. In that regard this expansion cycle is no different. But in addition to the trade tariffs, the U.S. is exporting more crude oil and petroleum products, and that is helping to keep the trade gap narrower now than it was heading into the last recession. It is uncertain how a new U.S./China trade deal will impact the overall U.S. trade gap. Some experts downplay the expected results. Other trade deals with Japan and with Europe are also under discussion. One of the biggest levers on the trade gap is the value of the dollar relative to other currencies. In this expansion cycle the dollar has stayed strong, making foreign-supplied goods and services relatively cheap. Adding to trade uncertainty, and to uncertainty in U.S. and global manufacturing supply chains, are the problems that Boeing is having with the 737 Max. Boeing is the largest U.S. exporter of manufactured goods. Orders and deliveries of the 737 Max decreased significantly in the first quarter. In addition to the drag on manufacturing and export metrics, the grounding of the 737 Max is impacting the profitability of some airlines.

The U.S. trade gap narrowed to -$49.4 in February. Exports of goods increased by $2.1 billion in February, while exports of services gained $0.2 billion. Imports of goods increased by $0.9 billion, while imports of services dropped by $0.3 billion. The average of the real trade balance of goods in January and February is below the average for the fourth quarter of 2018, implying that trade will be a positive for first quarter GDP.

Mortgage applications dropped for the second week in mid-April after a strong run through March. The Mortgage Bankers Association’s Composite Index declined by 3.5 percent for the week ending April 12. Purchase apps gained 0.9 percent, extending their winning streak to six consecutive weeks. Refis fell by 8.2 percent, their second consecutive loss. On a four-week moving average basis, refis are up 33.5 percent over year-ago levels. Purchase apps are up 8.2 percent over the last 12 months. According to the MBA, the rate for a 30-year fixed-rate mortgage notched up to 4.44 percent in mid-April, the second consecutive weekly increase after bottoming out at 4.36 percent in late March. We expect to see positive numbers for new and existing home sales in March.

Market Reaction: U.S. equity markets were positive after the open. The yield on 10-Year Treasury bonds is up to 2.59 percent. NYMEX crude oil is up to $64.13/barrel. Natural gas futures are down to $2.54/mmbtu.

For a PDF Version of this report click here: February 2019 U.S. International Trade, April 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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March 2019 Industrial Production, NAHB Index

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

Output Drifted Sideways Through Q1

*     Industrial Production decreased by 0.1 percent in March, with manufacturing output unchanged.
*     Builder Optimism increased in April.

Total U.S. industrial production dipped by 0.1 percent in March as output in in manufacturing was unchanged. Total output has been stagnant through the winter, little changed for the four consecutive months ending in March. Some of the recent weakness in headline IP is due to the impact of extreme weather on utility output. However, manufacturing output, which accounts for 75 percent of the total was also flat to down through the first quarter of this year. The same pattern is evident in both durable and nondurable goods manufacturing. Durable goods account for 38 percent of total industrial production, while nondurables account for slightly less, at 35 percent. The shares of the top ten categories of durables are in the same ballpark, at about 3-5 percent each. Nondurable manufacturing is dominated by foods and chemicals. Motor vehicle assemblies dipped in March to a 10.85 million unit pace. This is the weakest pace since last July, and clearly down from the peak 13.55 million unit pace from July 2015. We do not expect a return to that peak any time soon. Utility output gained 0.2 percent in March, after a 3.7 percent increase in February. Mining output was down by 0.8 percent in March, the third consecutive flat-to-down month for that industry group. Total capacity utilization was little changed in March at 78.8 percent. Capacity utilization tends to be very cyclical and it looks like we are at the top of the cycle now.

The National Association of Homebuilders preliminary Housing Market Index for April ticked up to 63. This index tracks builder sentiment for single-family construction. The trend in the index through the first four months of this year is up since it bottomed out last December. Lower mortgage rates this year are breathing some life back into housing. We expect spring sales to be positive, after limping through last year. Combined new and existing home sales jumped in February as affordability improved. Improving home sales will bolster builder confidence and construction rates, at least in the near term. We remain cautious about the housing market after this year. Given the near-record length of the current economic expansion, we assume that demand for new homes has largely been spent out, leaving less of an upside even with better affordability due to lower mortgage rates. With higher labor and materials costs and a shortage of infill lots, the cost of new construction will remain under pressure.

Market Reaction: Equity markets opened with gains. The yield on 10-Year Treasury bonds is up to 2.58 percent. NYMEX crude oil is up to $63.59/barrel. Natural gas futures are down to $2.58/mmbtu.

For a PDF Version of this report click here: March 2019 Industrial Production, NAHB Index

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

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Comerica Economic Weekly, April, 12, 2019

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

U.S. inflation metrics were pushed by energy prices in March, but core inflation remained calm.

Tightening global supply in early 2019 has boosted the price for West Texas Intermediate crude oil from a low of about $43.50 per barrel on December 24, to about $64.15 today. This is still well below the recent peak of about $75.50 from early October 2018, and near the $61-$62 prices from a year ago. If crude remains at or above current prices through April, then energy will again provide a temporary boost to April PPI and CPI.

The national average price for regular unleaded gasoline increased to $2.81 per gallon today. Some regional markets, particularly California, are seeing much higher prices. A year ago gasoline was $2.70 per gallon.

The Producer Price Index for final demand increased by 0.6 percent in March, the strongest monthly gain since last October. Over the 12 months ending in March, headline PPI was up by 2.2 percent, well below the recent peak yearly gain of 3.4 percent from last July. The energy price sub-index gained 5.6 percent in March, the strongest monthly gain in that series since it began in December 2009. Core PPI, defined as final demand less food, energy and trade, was unchanged in March after a weak 0.1 percent gain in February. Over the previous 12 months, core PPI has increased by 2.0 percent.

The headline Consumer Price Index increased by 0.4 percent in March. The 6.5 percent increase in the CPI for gasoline pushed the energy sub-index up by 3.5 percent in March. Food prices have also warmed up, gaining 0.3 percent in March after a 0.4 percent increase in February. Core CPI (all items less food and energy) remained calm, inching up by 0.1 percent in March after a similar weak gain in February. Over the 12 months ending in March, core CPI was up by 2.0 percent, while headline CPI was up by 1.9 percent.

Initial claims for unemployment insurance fell by 8,000 for the week ending April 6, to hit 196,000. This is the lowest level for initial claims since October 1969. There may be some seasonality in the data due to the variable timing of the Easter holiday. However, the very low initial claims data supports the view that February was an anomalous month for labor data and labor market conditions remain very tight heading into spring. Continuing claims for the week ending March 30 fell by 13,000 to hit 1,713,000.

The JOLTS survey for February showed that the job openings rate fell for the month, likely related to the government shutdown through January. Recent labor data shows a bounce back in hiring in March.

Total mortgage applications eased a bit in early April after a strong run through March. Refis surged through March as mortgage rates dropped, so a little give-back in early April is to be expected. Purchase apps were up by 0.5 percent in early April, posting their fifth consecutive weekly gain. On a four-week moving-average basis, refis are up 27.9 percent over the previous 12 months, while purchase apps are up 6.6 percent. According to the MBA, the rate for a 30-year fixed-rate mortgage firmed to 4.40 percent in early April.

According to the National Federation of Independent Business, small business optimism firmed slightly in March after falling for six consecutive months since last September.

The minutes from the FOMC meeting over March 19/20 contained no surprises. We expect the Federal Reserve to remain “patient” at the April 30/May 1 meeting and keep the fed funds rate unchanged from the current 2.25-2.50 percent.

For a PDF Version of this report click here: Comerica Economic Weekly, April 12, 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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March 2019 Producer Prices

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

Energy Prices Surged in March, but Overall Inflation Benign, UI Claims Low Low Low

•    The Producer Price Index for Final Demand increased by 0.6 percent in March.
•    Initial Claims for Unemployment Insurance fell by 8,000 for the week ending April 6, to hit 196,000.

Month-to-month readings on inflation came in hotter than expected in March, pushed by climbing crude oil prices. The Producer Price Index for final demand increased by 0.6 percent in March, the strongest monthly gain since last October. Over the 12 months ending in March, headline PPI was up by 2.2 percent, well below the recent peak yearly gain of 3.4 percent from last July. The energy price sub-index gained 5.6 percent in March, the strongest monthly gain in that series since it began in December 2009. Food prices were up by a moderate 0.3 percent for the month after declining in January and February. The Trade Index, which measures changes in margins by wholesalers and retailers, was up by a strong 1.1 percent. Core PPI, defined as final demand less food, energy and trade, was unchanged in March after a weak 0.1 percent gain in February. Over the previous 12 months core PPI has increased by 2.0 percent. So it is fair to say that even though energy prices were hot in March, we see little transmission to other parts of the economy so far.

Initial claims for unemployment insurance fell by 8,000 for the week ending April 6, to hit 196,000. This is the lowest level for initial claims since October 1969. After trending up in December and again in February, claims are again at multi-decade lows. There may be some seasonality in the data due to the variable timing of the Easter holiday this time of year. However, the very low initial claims data supports the view that February was an anomalous month for labor data and labor market conditions remain very tight heading into spring. Continuing claims for the week ending March 30 fell by 13,000 to hit 1,713,000.

Market Reaction: Equity markets were mixed after the open. The yield on 10-Year Treasury bonds is up to 2.50 percent. NYMEX crude oil is down to $63.84/barrel. Natural gas futures are down to $2.69/mmbtu.

For a PDF version of this report, click here: March 2019 Producer Prices, April 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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March 2019 CPI

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

Energy Pushed the CPI in March, Fed Still Patient

•    The March Consumer Price Index increased by 0.4 percent, pushed by energy prices.
•    The Core CPI gained just 0.1 percent in March and is up by 2.0 percent over the last year.
•    Mortgage Applications decreased by 5.6 percent for the week ending April 5.

Prices at the gasoline pump pushed the overall Consumer Price Index up by 0.4 percent in March. Crude oil prices climbed through March, with WTI near $60 per barrel through the second half of the month. The 6.5 percent increase in the CPI for gasoline pushed the energy sub-index up by 3.5 percent in March. Food prices were also warm, gaining 0.3 percent in March after a 0.4 percent increase in February. Fresh fruits and vegetables pushed the overall food price index up. Core CPI (all items less food and energy) remained calm, gaining 0.1 percent in March after a similar weak gain in February. Over the 12 months ending in March, core CPI is up by 2.0 percent, while headline CPI is up by 1.9 percent. If crude oil prices remain near the current $64 per barrel range then the overall energy price index will again be a boost to CPI in April. According to AAA, the national average price for regular unleaded gasoline is $2.76 per gallon today, up from $2.48 a month ago. The price 12 months ago was $2.66, so the one-year price changes from energy are still calm.

We expect the Federal Reserve to remain in “patient” mode at the upcoming FOMC meeting over April 30/May 1 and keep the fed funds rate unchanged. This afternoon the minutes from the previous FOMC meeting, over March 19/20 will be released. We may see some more details about the Fed’s analysis of risk factors for the U.S. economy and possibly some more insight into the wind down of the Fed’s balance sheet. But we do not expect to see any hints of a future policy shift in this set of minutes.

Total mortgage applications eased a bit in early April after a strong run through March. The Mortgage Bankers Association’s Composite Index for the week ending April 5 dropped by 5.6 percent as the refi index dipped by 11.4 percent. Refis surged through March as mortgage rates dropped, so a little give-back in early April is to be expected. Purchase apps were up by 0.5 percent in early April, posting their fifth consecutive weekly gain. On a four-week moving-average basis, refis are up 27.9 percent over the previous 12 months, while purchase apps are up 6.6 percent. According to the MBA, the rate for a 30-year fixed-rate mortgage firmed to 4.40 percent in early April. Both new and existing home sale surged in February. We expect to see strong sales numbers again in March and this will help home construction. However, we think that much of the cyclical demand for housing has already been spent out and there is a risk that the current opportunistic buying may be cannibalizing future demand.

Market Reaction: U.S. equity markets were mixed after the open. The 10-Year Treasury bond yield is down to 2.47 percent. NYMEX crude oil is up to $64.38/barrel. Natural gas futures are up to $2.71/mmbtu.

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

April 9, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Our job is to remind everyone why they call economics “the dismal science.” So as downside risks to the U.S. economy increased through the end of 2018 and into early 2019, we felt compelled to incorporate them in our U.S. economic forecast and to communicate about them. As a result, our real GDP forecast for the U.S. shows growth slowing significantly in 2020 and beyond. We have also increased our subjective probabilities of recession to show that there is a meaningful danger to this very long economic expansion lurking nearby. We hope that the downside risk story is no longer headline news, but something that is recognized in your planning process.

While we have covered the downside risk story for the U.S. economy in recent editions. There are two other important alternative stories. One alternative story describes an ongoing weak-to-moderate economic expansion. A key element of this potential outcome is the stabilizing power of the U.S. household sector. Wages and salaries account for about half of U.S. personal income. We know that the employment rate (the inverse of the unemployment rate) now stands at 96.2 percent. There is always some frictional unemployment in the system as available labor seeks its best opportunity, but it is fair to say that hiring conditions remain very favorable and almost everyone who wants a job has a job. Because of the general scarcity of available labor, wages in most occupations are being bid up. The yearly rate of change of average hourly earnings was 3.4 percent in February, well above the yearly change in the Consumer Price Index of 1.5 percent for the month. So most households are seeing real gains in earnings. At the same time homeowners’ equity in their homes is increasing and the personal saving rate remains elevated well above pre-recession rates. Overall consumer debt remains manageable. The household financial obligations ratio, debt payments as a percent of income, is still well below the historical average from 1980 through 2010.

There is also an upside story waiting to unfold if conditions allow. A resolution to the U.S./China trade war could be a catalyst for improved business confidence and investment. A long pause, or even a rate cut by the Federal Reserve would keep a lid on the cost of capital for businesses. The recent dip in home mortgage rates could provide a reset for the housing market. If earnings remain strong and corporate profits stay robust, then equity markets could stage another rally, generating significant wealth.

Our monthly U.S. forecast seeks to balance the upside and downside risk factors for the U.S. economy and show what we believe is the most likely near-term outcome. We expect to see ongoing economic growth this year after a very weak first quarter. We expect growth to moderate toward the end of this year and into early 2020 as the current economic expansion establishes a new record duration of more than 120 months.

The low-growth economy beyond 2019 will be vulnerable to downdrafts and may fall into technical recession without replaying the catastrophic cliff dive of 2008-2009. Barring a dramatic correction in global debt markets, the next recession could look more like the on-again-off-again pattern of 2001 than the classic V-shaped recession pattern.

We saw a bit of this this zag-zag pattern in GDP growth through 2011 and again in the second half of 2012 into early 2013. A revolution in oil field technology spurred a sustained peak in drilling activity, well servicing and investment in production and distribution systems that provided enough of a boost to business investment that we avoided a follow-on recession after the Great Recession. Without the Shale Gale we might have fallen into the Recession of 2011/2012. The current expansion cycle would then be dated much differently, with perhaps more potential to continue.

For a PDF version of this report, click here: April 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, April 5, 2019

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

The big story for the U.S. economy this week was the rebound in payroll job growth for March, following a very weak February gain. Other U.S. data was mixed, consistent with soft first quarter GDP growth.

U.S. payrolls expanded by a solid 196,000 in March. The weak February gain, initially reported at +20,000, was revised up to a still-weak +33,000. January payrolls were also revised up slightly. The unemployment rate held steady at 3.8 percent for the second month. Average hourly earnings increased modestly, up 4 cents for the month, and 3.2 percent over the previous 12 months. This is down slightly from the 3.4 percent year-over-year gain in earnings reported in February, but the trend in earnings still looks like it is increasing. The labor force participation rate eased to 63.0 percent, little changed over the past 12 months. 

New orders for durable manufactured goods decreased by 1.6 percent in February, held down by volatile commercial aircraft orders. Boeing’s recent problems may  have an impact on that component. 

The ISM Manufacturing Index for March increased to 55.3, from February’s 54.2. This is a solid reading for the U.S. manufacturing index. Nine out of ten sub-indexes were above 50, including new orders, production and employment. Sixteen out of 18 industries said conditions improved in March. Apparel and paper products reported contraction. Anecdotal comments were positive. There was an interesting comment from a wood products company that talked about a backlog in home construction due to winter weather, which they expect to lead to a surge in business later this spring. 

The ISM Non-manufacturing Purchasing Managers’ Index eased to a still-solid 56.1 percent in March, after posting a strong 59.7 in February. Production, new orders and employment were all positive in March. Sixteen non-manufacturing industries reported expansion for the month. Only two, educational services and retail trade, reported contraction. Anecdotal comments were generally favorable. Another positive reading from this broad-based economic indicator is a good sign for the U.S. economy. Even though global manufacturing conditions have deteriorated, U.S. non-manufacturing businesses are still doing well. 

Mortgage applications increased strongly for the week ending March 29 with gains in both purchase and refis. This was the fourth consecutive weekly increase in the total mortgage apps index. Purchase apps have been up for four consecutive weeks, gaining 3.4 percent for the week ending March 29. Refi apps are up for the third consecutive week, gaining 38.5 percent in the recent data. On a four-week moving-average basis, purchase apps are up 4 percent from a year ago, while refis are up 16.2 percent from a year ago. According to the Mortgage bankers Association the rate for a 30-year fixed-rate mortgage was down to 4.36 percent at the end of March. 

Total construction spending increased by 1.0 percent in February, driven by strong public construction activity. Public projects increased by 3.6 percent for the month, with a 9.5 percent increase in highway and street spending. Private nonresidential construction spending dipped by 0.5 percent. Private residential construction spending increased by 0.7 percent in February as spending on new home construction increased. 

The Fed will digest the news and remain “patient” at the upcoming FOMC meeting over April 30/May 1, leaving the fed funds rate range unchanged from the current 2.25-2.50 percent. We expect no other major announcements from the Fed in the near term.

For a PDF version of this report, click here:  Comerica Economic Weekly, April 5, 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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March 2019 U.S. Employment

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

March Payrolls Rebound, Setting Up Q2 Lift

*     Payroll Employment increased by a solid 196,000 jobs in March after a weak February gain.
*     The Unemployment Rate for March remained at 3.8 percent.
*     Average Hourly Earnings increased by 4 cents in March and were up 3.2 percent over the year.
*     The Average Workweek in March increased by 0.1 hours to 34.5 hours.

The March payroll numbers show a clear rebound from a weak February print. They add to the sense that the U.S. economy still has a solid foundation even though global and some U.S. indicators have weakened in recent months. We still expect to see the third consecutive decline in quarterly GDP growth for the first quarter of this year. However, we also expect the second quarter GDP numbers to show improvement. We will release our updated April U.S. Economic Outlook next week. Today’s jobs report for March reinforces our sense that there is a floor under the U.S. economy, built by years of strong hiring and increasing household wealth. U.S. payrolls expanded by a solid 196,000 in March. The weak February gain, initially reported at +20,000, was revised up to a still-weak +33,000. January payrolls were also revised up slightly. The unemployment rate held steady at 3.8 percent for the second month. Average hourly earnings increased modestly, up 4 cents for the month, and 3.2 percent over the previous 12 months. This is down slightly from the 3.4 percent year-over-year gain in earnings reported in February, but the trend in earnings still looks like it is increasing. The labor force participation rate eased to 63.0 percent, little changed over the past 12 months. This was a solid report after a scare in February. The Fed will digest the news and remain “patient” at the upcoming FOMC meeting over April 30/May 1 and leave the fed funds rate range unchanged from the current 2.25-2.50 percent.

Establishment data was generally positive in March. Mining and logging industries gained 2,000 net new jobs for the month. Construction companies built 16,000 in March despite a weak ADP report for the month. Manufacturing lost 6,000 jobs, concentrated in durable goods industries. Wholesale trade gave up 2,000 jobs. Retail trade remained choppy, giving up 11,700 net jobs in March. Transportation and warehousing companies added 7,300 jobs. Information services printed up 10,000 net new jobs. Financial services funded an additional 11,000 jobs in March. Professional and business services gained a solid 37,000 jobs. Education and healthcare had a strong month, gaining 70,000. Leisure and hospitality served up 33,000 jobs. Government employment increased by 14,000 in March.

Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is down to 2.51 percent. NYMEX crude oil is up to $62.42/barrel. Natural gas futures are up to $2.64/mmbtu.

For a PDF version of this report, click here: March 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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March 2019 ADP Jobs, ISM Non-MF, Mortgage Apps

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

ADP Jobs Report Below Expectations

*     The ADP Employment Report for March showed an increase of 129,000 private sector jobs.
*     The ISM Non-Manufacturing Index for March eased to a still-positive 56.1 percent.
*     Mortgage Applications increased through March on both purchases and refis.

ADP’s count of private-sector payrolls jobs for March showed a net increase of 129,000 jobs, below market expectations of about 175,000. This reduces expectations for the official Bureau of Labor Statistics job count for march which will be released Friday morning. For February, the BLS showed a net gain of only 20,000 payroll jobs for the month. We still expect to see a bounce back, but the weaker-than-expected ADP numbers for March temper our expectations from the BLS. According to ADP small businesses, with less than 50 employees, added just 6,000 net new jobs in March, well off the recent average of about 60,000. Like other payroll numbers, occasionally this series falls flat and one or two weak months does not make a trend. However, it definitely bears watching in the months ahead. Medium sized businesses with 50-499 employees added a reasonable 63,000 net new jobs in March. Large businesses added 60,000. The construction industry shed about 6,000 net jobs, Manufacturing lost 2,000 jobs. Service-providing industries added a reasonable 135,000 net new jobs in March. This report was not terrible, but it does add to the perception that labor markets may be starting to change after a multi-year hiring spree.

The ISM Non-manufacturing Purchasing Managers’ Index eased to a still-solid 56.1 percent in March, after posting a strong 59.7 in February. Production, new orders and employment were all positive in March. Sixteen non-manufacturing industries reported expansion for the month. Only two, educational services and retail trade, reported contraction. Anecdotal comments were generally favorable. Another positive reading from this broad-based economic indicator is a good sign for the U.S. economy. Even through global manufacturing conditions have deteriorated, U.S. non-manufacturing businesses are still doing well.

Mortgage applications increased strongly for the week ending March 29 with gains in both purchase and refi apps. This was the fourth consecutive weekly increase in the total mortgage apps index. Purchase apps have been up for four consecutive weeks, gaining 3.4 percent for the week ending March 29. Refi apps are up for the third consecutive week, gaining 38.5 percent in the recent data. On a four-week moving-average basis, purchase apps are up 4 percent from a year ago, while refis are up 16.2 percent from a year ago. Lower mortgage rates have boosted both series. According to the Mortgage bankers Association the rate for a 30-year fixed-rate mortgage was down to 4.36 percent at the end of March.


Market Reaction: U.S. equity markets opened with gains. The yield on 10-Year T-bonds is up to 2.51 percent. NYMEX crude oil is down to $62.29/barrel. Natural gas futures are down to $2.66/mmbtu.

For a PDF version of this publication, click here: March 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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February 2019 Retail Sales, ISM-MF Index, Jan. Construction Spending

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

Consumer Caution Crimped Q1 GDP

*     Retail Sales decreased by 0.2 percent in February and are up 2.2 percent over the previous year.
*     The ISM Manufacturing Index improved to 55.3 in March.
*     Construction Spending increased by 1.0 percent in February.

Retail sales registered their fourth decline in the last seven months, dipping by 0.2 percent in February. The drop in headline sales came despite increased gasoline prices and stable unit auto sales. Building materials sales were a big weight on the headline number, dropping by 4.4 percent in February. Gasoline station sales increased by 1.0 percent in February as the price for unleaded regular gasoline increased by 1.7 percent. February saw the first monthly price gain for gasoline since October. Motor vehicle and parts sales increased by 0.7 percent as unit auto sales were essentially unchanged in February at a 16.6 million unit annual rate. Food and beverage sales fell by 1.2 percent in February. Over the previous 12 months, headline retail sales were up by 2.2 percent, a little ahead of the Consumer Price Index which gained 1.5 percent over the year. Retail spending is a complex story right now. Consumers are enjoying low unemployment, increasing wages and higher house prices with low mortgage rates. Even though most consumer fundamentals are favorable, there are some important negatives. One is demographics. As the population ages, more people are either saving for retirement or living on fixed incomes. Younger people may be saddled by a lot of student debt. We expect reserved consumer spending in Q1 to be a key feature of a weak-to-moderate GDP growth story for the quarter. The personal saving rate, which we could call the non-spending rate, has remained higher in this expansion cycle than in the previous one. In December, the personal saving rate increased to 7.7 percent and remained high at 7.5 percent in January. The government shutdown from late December through January is also a part of the cautious consumer spending story.

The ISM Manufacturing Index for March increased to 55.3, from February’s 54.2. Anything above 50 represents improving conditions. So, 55.3 is a solid reading for the U.S. manufacturing index. Nine out of ten sub-indexes were above 50, including new orders, production and employment. Sixteen out of 18 industries said conditions improved in March. Apparel and paper products reported contraction. Anecdotal comments were positive, indicative of improving business confidence. There was an interesting comment from a wood products company that talked about a backlog in home construction due to winter weather, which they expect to lead to a surge in business later this spring.

Total construction spending increased by 1.0 percent in February, driven by strong public construction activity. Public projects increased by 3.6 percent for the month, with a 9.5 percent increase in highway and street spending. Private nonresidential construction spending dipped by 0.5 percent. Private residential construction spending increased by 0.7 percent in February even as spending on new home construction increased.

Market Reaction: Equity markets opened with gains. The 10-year Treasury yield is up to 2.48 percent. NYMEX crude oil is up to $60.95/barrel. Natural gas futures are up to $2.71/mmbtu.

For a PDF version of the report, click here: February 2019 Retail Sales, ISM-MF Index, Jan. 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, March 29, 2019

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

Economic data from this week was mixed, consistent with our expectation that U.S. economic growth cooled through the fourth quarter of last year, and continued to cool into the first quarter of this year. Housing data show that lower mortgage rates are having a positive impact on home sales.

The third estimate of 2018Q4 real GDP growth was revised down to show a 2.2 percent annualized growth rate. The first estimate of Q4 GDP showed a 2.6 percent growth rate. Given our estimate of 1.5-2.0 percent real GDP growth for 2019Q1, we expect to see the third consecutive step down in real GDP growth for the now-complete first quarter.

Total corporate profits from current production (after inventory valuation and capital consumption adjustment) fell by $9.7 billion in Q4 after a strong $78.2 billion increase in Q3. Total profits were pulled down by financial firms. Nonfinancial corporate profits expanded by $13.6 billion in Q4, the weakest quarterly gain of 2018. We remain concerned about the potential for a corporate profit squeeze this year due to higher labor and capital costs and flat pricing.

Nominal personal income increased by 0.2 percent in February after falling by 0.1 percent in January, likely influenced by the Federal government shutdown. We did not get a PCE price index for February or estimates for real and nominal consumer spending.

New home sales for February increased by 4.9 percent, motivated by falling mortgage rates. The months’ supply of new homes for sales dipped from 6.5 month’s worth in January, to 6.1 in February. Further declines in mortgage rates through March will help to shore up the housing market which sagged through 2018.

Total mortgage applications were strong for the week ending March 22 as both purchase and refi apps increased. On a 4-week moving average basis, refi apps are gaining momentum and have now caught up slightly  compared to their year-ago levels. Purchase apps are up by 1.8 percent from a year ago.  According to the Mortgage Bankers Association the rate for a 30-year fixed rate mortgage is down to 4.45 percent. Five-year ARMs are down to 3.77 percent.

After spiking in January, single-family housing starts reset in February, pulling the headline number down. Total housing starts fell by 8.7 percent in February to a 1,162,000 unit annual rate. Total permits for new residential construction eased by 1.6 percent in February.

The Case-Shiller U.S. National Home Price Index, seasonally adjusted, increased by 0.2 percent in January, pulling the 12-month gain down to 4.3 percent. Momentum in house price growth is clearly easing across most U.S. cities. Las Vegas stands out, still showing a strong 10.5 percent year-over-year gain in January. But previously hot San Diego is down to a 1.3 percent year-over-year increase, and San Francisco is down to 1.8 percent.

The U.S. international trade gap narrowed significantly in January, to -$51.1 billion, from December’s -$59.9 billion. Trade data was quirky through 2018 and into early 2019 as trade wars motivated companies to front-load shipments ahead of new tariffs. This led to strong months followed by weak months for both imports and exports.  As it stands now, trade should be supportive for 2019Q1 GDP. Exports increased by $1.9 billion in January, while imports dropped by $6.8 billion.

Consumer confidence fell noticeably in March according to The Conference Board. We expect lower mortgage rates to win the battle against lower consumer confidence in March.

For a PDF version of the report, click here: Comerica Economic Weekly, March 29, 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 Arizona Index Ticks Up

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

Comerica Bank’s Arizona Economic Activity Index increased by 0.1 percent in January to a level of 114. January’s index reading is 15 points, or 15 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. December’s index reading was revised to 113.9.

The Comerica Bank Arizona Economic Activity Index ticked up again in January, increasing for the sixth consecutive month. The  gains were wide spread for the month. Seven of the nine index components were positive in January. This included nonfarm employment, unemployment insurance claims (inverted), house prices, industrial electricity demand, state total trade, hotel occupancy and enplanements. The two negative index components in January were housing starts and state sales tax revenue. Our Arizona Index continues to improve, indicating ongoing economic momentum through 2018 and into early 2019. Strong job growth helped drive Arizona’s economic growth in 2018. One concern for the state’s labor market is the recent uptick in the unemployment rate from 4.7 percent in June of 2018 to 5.1 percent in February 2019. However, Arizona continuing unemployment insurance claims have steadily declined since last summer. Therefore, population growth and the re-entry of marginally attached workers into the labor force may be contributing factors to the recent increase in the state unemployment rate. The expansion of the labor force is a positive for the Arizona economy. The housing sector will also be a positive factor for Arizona this year. House prices, housing starts and construction employment were all up in 2018. Lower mortgage rates this year will support demand for Arizona housing and new home construction in 2019.



For a PDF version of this report, click here: Comerica Bank's Arizona Economic Activity Index.

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

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Comerica Bank’s Florida Index Moves Up

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

Comerica Bank’s Florida Economic Activity Index increased by 0.2 percent in January to a level of 115.6. January’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. December’s index reading was 115.4.

The Comerica Bank Florida Economic Activity Index increased for the eighth consecutive month in January. The Florida Index components were generally positive in January. Seven of nine index components improved for the month including nonfarm employment, housing starts, house prices, state total trade, hotel occupancy, sales tax revenues and total enplanements. The two negative components for the month were unemployment insurance claims (inverted) and industrial electricity demand. Florida job growth was fairly strong in 2018. This helped to push the state’s unemployment rate down to a very low 3.3 percent in December. The unemployment rate has since ticked up to 3.5 percent in February. This is consistent with the slight increase in Florida unemployment insurance claims in recent months. However, unemployment insurance claims remain near historical lows, so we still see ongoing strength in state’s labor market in 2019. Another source of strength is the state’s housing market. New home construction climbed from September 2018 through January. According to the Case-Shiller Home Price Index, Miami home prices were up 4.8 percent in the 12 months ending in January. Year-over-year home prices for Tampa have moderated from a recent high of 7.5 percent in March 2018 to 5 percent in January. We expect the Florida economy to continue its moderate expansion this year.



For a PDF version, of this report click here: Comerica Bank's Florida Economic Activity Index.

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

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Comerica Bank’s California Index Dips

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

Comerica Bank’s California Economic Activity Index declined by 0.3 percent in January. January’s reading is 26 points, or 26 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. December’s reading was revised  to 123.8.

Comerica Bank’s California Economic Activity Index declined by 0.3 percent in January. This followed a 0.4 percent decline December. The California Index saw a strong downward revision in the housing starts component for December. In January, only two of the index components were positive including nonfarm employment and hotel occupancy. The six negative index components for the month were unemployment insurance (inverted), housing starts, house prices, industrial electricity demand, total trade and the Dow Jones Tech Index. Our California Index has now posted three consecutive monthly declines. Leading the declines were tech stocks prices which were pummeled from October to December. Tech stock prices have since rebounded through March and will be a net positive for our index in the coming months. California housing data has also been sluggish in recent months. Total housing starts peaked at a 131,000 unit annual rate in March  2018. That number dropped to just a 60,000 unit annual rate in December 2018. The slowdown in housing activity has led to a dramatic downshift in home price growth across California’s major regions. According to the S&P Case-Shiller, home prices were up just 2.9 percent in Los Angeles and 1.3 percent in San Diego for the 12 months ending in January. Year-over-year home price growth in San Francisco has abruptly declined from 10.6 percent in August to 1.7 percent in January.



For a PDF version of this report, click here: Comerica Bank California Economic Activity Index.

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

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Comerica Bank’s Michigan Index Declines

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

Comerica Bank’s Michigan Economic Activity Index decreased by 0.7 percent in January to a level of 117.2. January’s reading is 19 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. December’s index reading was 118.0.

Comerica Bank’s Michigan Economic Activity Index fell in January by 0.7 percent, down for the third consecutive month. The index is now down for six out of the past eight months. Over the year ending in January, the Michigan index is down by 1.1 percent. We expect Michigan to show  moderate-to-weak gross state product growth for 2018 and only weak growth for 2019. In January, four out of nine index components were positive. They were nonfarm payrolls, house prices, industrial electricity demand and state sales tax revenues. Negatives for January were unemployment insurance claims (inverted), housing starts, light vehicle production, total state trade and hotel occupancy. The Michigan economy is enduring creative-destruction in the auto sector. Older auto plants for less popular gasoline-powered products are closing, while new facilities are planned for next-generation electric vehicles. We expect the churn in the auto industry to result in a net reduction in workers required per vehicle assembled. A key motivator for the auto industry is a significant decrease in the hands-on assembly time for electric vehicles. This will likely have negative consequences for Michigan’s labor market even as the auto industry remains healthy overall. Beyond the auto sector, Michigan will feel the drag from a cooler U.S. economy and cooler global conditions this year.



For a PDF version of this report, click here: Comerica Bank Michigan Economic Activity Index.

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

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Comerica Bank’s Texas Index Improves

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

Comerica Bank’s Texas Economic Activity Index increased by 0.4 percent in January to 136.2. January’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, 5.7 points above the average for 2017. December’s  index reading was revised to 135.7.

The Comerica Bank Texas Economic Activity Index got back on track in January, increasing by 0.4 percent, after easing by 0.1 percent in December. The January 2019 index is 2.3 percent above its reading from a year ago, consistent with ongoing real state gross domestic product growth over 2018. In January, five out of nine index components were positive. They were nonfarm employment, housing starts, house prices, hotel occupancy and state sales tax revenues. The negatives for January were initial claims for unemployment insurance (inverted), industrial electricity demand, rig count and total state trade. It looks like the Texas economy cooled from strong growth through the first half of 2018, to moderate growth through the second half of the year. This is consistent with the pattern of crude oil prices, which increased to a peak of near $74 per barrel by early October, and then dropped sharply to about $46 per barrel by year-end. Drilling and production companies scaled back their activities through the end of 2018, and planned for reduced growth in capital spending in 2019 as a result of the reset in crude oil prices. With oil prices back up to near $60 per barrel, energy companies are more profitable but have remained cautious about ramping up capital spending. We expect cooler global and U.S. economic conditions in 2019 to keep Texas economic growth positive, but moderate this year.



For a PDF version of this report, click here: Comerica Bank Texas Economic Activity Index 0319.

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

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February 2019 Housing Starts, Jan. HPI, March Consumer Confidence

March 26, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Housing Indicators Still Soft. Lower Rates Versus Lower Confidence.

*     Housing Starts fell by 8.7 percent in February, to a 1,162,000 unit annual rate.
*     Housing Permits notched down by 1.6 percent in February to a 1,296,000 unit annual rate.
*     The Case-Shiller U.S. National Home Price Index for January was up by 4.3 percent over the year.
*     Consumer Confidence declined in March according to The Conference Board.

After spiking in January, single-family housing starts reset in February, pulling the headline number down. Total housing starts fell by 8.7 percent in February to a 1,162,000 unit annual rate. Single-family starts fell by 17.0 percent in February, to an 805,000 unit annual rate, after increasing by 19.2 percent in January. Multifamily starts went the other way, increasing by 17.8 percent in February. Both series show no momentum through the winter months. Total permits for new residential construction eased by 1.6 percent in February. Single-family permits were unchanged from January, while multi-family permits dropped slightly. Lower mortgage rates this spring are expected to support home sales, which in turn will support new construction. However, at least part of the reason for lower mortgage rates this spring is reduced expectations for the U.S. economy in 2019. So this phenomenon is a two-edged sword for housing. As long as labor markets remain solid and consumer confidence remains elevated, the housing sector will benefit from lower rates. Unfortunately, consumer confidence looks a little shaky.

The Case-Shiller U.S. National Home Price Index increased by 0.2 percent in January, seasonally adjusted, bringing the 12-month gain down to 4.3 percent, after registering a 4.6 percent year-over-year gain in December. Momentum in house price growth is clearly easing across most U.S. cities. Las Vegas stands out, still showing a strong 10.5 percent year-over-year gain in January. But previously hot San Diego is down to a 1.3 percent year-over-year increase, and San Francisco is down to 1.8 percent.

The Conference Board’s Consumer Confidence Index fell noticeably in March. The level of the index is still good, but the direction is troubling. The index has been on a see-saw path, declining through December and January before rebounding in February. Both the assessment of current conditions and expectations for the future dipped in March.

Market Reaction: Stock indexes opened with gains. The yield on 10-year Treasury bonds is up to 2.43 percent. NYMEX crude oil is up to $60.06/barrel. Natural gas futures are down to $2.76/mmbtu.

For a PDF version of this report, click here: February 2019 Housing Starts, Jan. HPI, March Consumer Confidence

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, March 22, 2019

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

The Federal Reserve dominated economic news this week as it released its policy announcement on Wednesday. Treasury bond yields fell after the new dot plot signaled no Fed rate hikes for 2019. 

The Conference Board’s Leading Economic Index for the U.S. improved in February, breaking a four-month string of flat-to-down months that started last October. The Leading Index increased by 0.2 percent in February, pushed by the rally in stock prices. The Coincident Index also increased by 0.2 percent in February, driven by personal income. The Lagging Index was unchanged in February, breaking a string of four consecutive positive months. All in, the three indexes show slower, but ongoing, momentum for the U.S. economy through the first quarter.

Initial claims for unemployment insurance fell by 9,000 for the week ending March 16, to hit 216,000. Continuing claims fell by 27,000 for the week ending March 9, to hit a very low level of 1,750,000. The claims data is consistent with a rebound in job creation in March. 

Sales of existing homes jumped by 11.8 percent in February, to a 5.51 million unit annual rate as buyers took advantage of lower mortgage rates. This is the highest sales rate since March 2018. The median sale price of an existing home increased by 3.6 percent in February over the previous year. The inventory of unsold homes dropped from 3.9 to 3.5 months’ worth in February.

Total mortgage applications increased by 1.6 percent for the week ending March 15, led by a 3.5 percent gain in refis. Purchase apps inched up by 0.3 percent.  On a four-week moving average basis refis were down 2.6 percent from a year ago, while purchase apps were up 1.6 percent over the previous 12 months. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage fell to 4.55 percent.

As widely expected, the Federal Reserve left the fed funds rate range unchanged at 2.25-2.50 percent on March 20. The policy announcement contains the now familiar “patient” language that the Fed first rolled out in December. The economic commentary in the policy announcement was slightly downgraded from the policy announcement of January 30. The median projection of real GDP growth for 2019 was downgraded from 2.3 percent from last December, to 2.1 percent. This is the Fed’s second consecutive downgrade of expected GDP growth for 2019. The new dot plot is consistent with zero rate hikes in 2019 and just one more rate hike over 2020 and 2021. The vote on the policy decision was unanimous.

The Fed also released more details on balance sheet normalization. The Fed now plans to begin reducing the pace of balance sheet reduction this May and conclude the reduction of Treasury bonds on its balance sheet at the end of September 2019. Reduction of agency debt and MBS will continue past September. As roll-off of maturing assets tapers down, the Fed will invest maturing principal across a range of Treasury bond maturities consistent with the composition of maturing Treasury bonds outstanding. 

The flash purchasing managers’ index for German manufacturing for March fell to a five-year low of 47.7, indicating modest contraction.  The gloomy German economic data brought the 10-year Bund yield down to negative 0.01 percent at the end of the week. This put further downward pressure on U.S. Treasury bond yields. A weaker German economy will have a ripple effect on the rest of Europe. This news will tend to keep European Central Bank monetary policy more accommodative, which, in turn, will tend to reinforce the Federal Reserve’s expected flatline on the fed funds rate this year.

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

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

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February 2019 Leading Indicators, March UI Claims

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

Leading Indicators Improve in February

•The Conference Board’s Leading Economic Index for February increased by 0.2 percent.
•Initial Claims for Unemployment Insurance fell by 9,000 for the week ending March 16, to hit 221,000.

The Conference Board’s Leading Economic Index for the U.S. improved in February, breaking a four-month string of flat-to-down months that started last October. The Leading Index increased by 0.2 percent in February, pushed by the rally in stock prices. Other positive factors were credit conditions, consumer expectations for business conditions, interest rate spread, manufacturers’ new orders for nondefense capital goods excluding aircraft and manufacturers’ new orders for consumer and goods and materials. The negative factors in the February Leading Index were weekly manufacturing hours worked and average weekly claims for unemployment insurance. The break out of the four-month stall in the Leading Index comes as welcome news. However, the fact that the February Leading Index was driven by stock market performance invites some healthy skepticism. Nonetheless, the headline reading is good news. The Coincident Index also increased by 0.2 percent in February, driven by personal income. Manufacturing and trade sales, industrial production and payroll employment were also listed as positive factors. The monthly change in employment was barely positive in February. The Coincident Index has shown steady gains in recent months. The Lagging Index was unchanged in February, breaking a string of four consecutive positive months. The positive contributors to the Lagging Index in February were commercial and industrial loans and the ratio of manufacturing and trade inventories to sales. Negatives for the Lagging Index were average duration of unemployment and unit labor costs for manufacturing. All in, the three indexes show slower, but ongoing, momentum for the U.S. economy through the first quarter.

The weekly unemployment insurance claims data appears to be settling down after a period of volatility from December through February, exacerbated by the partial federal government shutdown. The trend from late February through mid-March has been relatively stable at a slightly higher level than we saw during the exceptional stretch from late last summer through early fall. Even though we had a surprisingly weak 20,000 job net payroll gain in February the unemployment insurance claims data do not suggest that the labor market is weakening significantly. Initial claims for unemployment insurance fell by 9,000 for the week ending March 16, to hit 216,000. Continuing claims fell by 27,000 for the week ending March 9, to hit a very low level of 1,750,000. We expect March payroll job growth to rebound after the weak February data.

Market Reaction: U.S. equity markets opened with gains. The 10-year Treasury bond yield is down to 2.52 percent. NYMEX crude oil is up to $60.12/barrel. Natural gas futures are down to $2.82/mmbtu.

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

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

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FOMC Policy Announcement and Supporting Materials

March 20, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Fed Leaves Fed Funds Rate Unchanged as Expected

*     The FOMC voted today to keep the fed funds rate range at 2.25-2.50 percent.
*     The new Dot Plot for 2019 is consistent with zero rate hikes for the year.

As widely expected, the Federal Reserve left the fed funds rate range unchanged at 2.25-2.50 percent today at the conclusion of the Federal Open Market Committee meeting. The policy announcement contains the now familiar “patient” language that the Fed first rolled out in December. The economic commentary in the policy announcement was slightly downgraded from the policy announcement of January 30. According to the Fed, “…growth of economic activity has slowed from its solid rate in the fourth quarter.” And further, “…indicators point to slower growth of household spending and business fixed investment in the first quarter” (emphasis, ours). That view is consistent with the new set of economic projections issued by the Fed. The median projection of real GDP growth for 2019 was downgraded from 2.3 percent from last December, to 2.1 percent. This is the Fed’s second consecutive downgrade of expected GDP growth for 2019. The new dot plot is consistent with zero rate hikes in 2019 and just one more rate hike over 2020 and 2021. The vote on today’s policy decision was unanimous.

Also, the Fed released more details on balance sheet normalization. The Fed now plans to begin reducing the pace of balance sheet reduction this May and conclude the reduction Treasury bonds on its balance sheet at the end of September 2019. Reduction of agency debt and MBS will continue past September. As roll-off of maturing assets tapers down, the Fed will invest maturing principal across a range of Treasury bond maturities consistent with the composition of maturing Treasury bonds outstanding. This means that the Fed will not try to bend the yield curve as part of this normalization process, and they will not use normalization to materially change the average duration of their assets. The Fed explicitly stated that limited sales of agency MBS might be warranted after September in order to reduce or eliminate residual holdings, meaning that they do not want to hold MBS over the long term.

In his post-announcement press conference, Fed Chairman Jay Powell stated that Brexit and trade tensions remain downside risks to the U.S. economy. Powell also said that a flat or inverted yield curve does not alarm him at this time.

The next FOMC meeting will be held over April 30/May 1.

Market Reaction: U.S. equity prices dropped through the morning. But stocks rebounded after the Fed policy announcement was released at 1pm central time as investors learned that the Fed will likely keep the fed funds rate unchanged for the duration of 2019. The 10-year Treasury yield dropped to 2.54 percent after the release of the policy announcement. NYMEX crude oil is up to $60.12 per barrel. Natural gas futures are down to $2.83/mmbtu.

For a PDF version of this report, click here: FOMC Policy Announcement and Supporting Materials

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, March 15, 2019

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

It was another week of mixed readings for the U.S. economy. Inflation was muted. Retail sales were disappointing and industrial production was so-so. 

Upstream prices showed little momentum in February as the Producer Price Index for final demand gained just 0.1 percent for the month. Over the previous 12 months, the PPI for final demand was up by 1.9 percent, well below the recent peak year-over-year change of 3.4 percent from last July. A jump in energy prices in February was countered in the headline index by a drop in prices for transportation and warehousing services. 

Downstream prices also behaved. The Consumer Price Index for February increased by 0.2 percent. Over the previous year, the headline CPI was up by just 1.5 percent. Consumer energy prices climbed through February, up by 0.4 percent for the month. Utility, vehicle and medical care commodity prices all dropped. 

Retail sales gained just 0.2 percent in January after dropping by 1.6 percent in December. The nominal value of motor vehicle sales fell 2.4 percent for the month. Several other categories were weak, reflecting the direct impact of the government shutdown and its weight on overall consumer confidence. 

Business optimism has been sliding, down every month from September through January. In February, the National Federation of Independent Business’s Small Business Optimism Index broke the losing streak, inching up after the government shutdown came to an end. 

Industrial production inched up by 0.1 percent in in February. Manufacturing output dropped by 0.4 percent even though vehicle assemblies were steady. Utility output bounced by 3.7 percent in February after sliding through December and January. 

Total mortgage applications improved by 2.3 percent for the week ending March 8. Purchase apps were up by 4.3 percent. Refi apps were down by just 0.2 percent. On a four-week moving average basis, refi apps were down 5.5 percent from a year ago, while purchase apps were up by 2.2 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage fell to 4.64 percent. 

Sales of new homes dropped by 6.9 percent in January, to a 607,000 unit annual rate. The January drop came after a sizeable gain in December and it also was coincident with the government shutdown. Lower mortgage rates will help this spring.

Total construction spending increased by 1.3 percent in January, led by an unsustainable 4.9 percent jump in spending on public projects. 

Job openings increased in January, consistent with the outsized net gain of 311,000 payroll jobs for the month. The JOLTS data confirm that hiring was strong. 

New claims for unemployment insurance increased by 6,000, to hit 229,000 for the week ending March 9. Continuing claims gained 18,000, to hit 1,776,000 for the week ending March 2. 

The Federal Open Market Committee will meet over March 19/20. Just like the January FOMC meeting, this will be an important meeting, more for what the Fed says than what they do. We expect them to leave the benchmark fed funds rate range unchanged. But we look forward to new information about balance sheet reduction and the final target level of the Fed’s balance sheet. We also look forward to seeing the new dot plot, which we expect to be flatter than the December dot plot, reflecting the Fed’s expectations for fewer rate hikes in the near term. We expect this to be corroborated by downward revisions to the Fed’s economic forecast numbers.

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

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

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March 2019 U.S. Economic Outlook

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

Flatlining the Fed

We have removed the one fed funds rate hike for 2019 that we had previously shown in our interest rate forecast. In our February interest rate forecast, we had one fed funds rate hike coming at the June FOMC meeting. Now, in our March interest rate forecast we show the fed funds rate range remaining at the current 2.25-2.50 percent through 2021.  This reflects our uncertainty about both the timing and the direction of the Fed’s next move. 

In his 60-Minutes interview from March 5, Fed Chairman Jay Powell again emphasized the Fed’s “patient” stance. Powell said, “Patient means that we don’t feel any hurry to change our interest rate policy.” Powell’s chief justification was a cooler global economy and he highlighted downside risks emanating from weaker demand in China and Europe and from the Brexit process in the U.K.

The flattening of the Treasury bond yield curve early this year is consistent with the view that the Fed is at the top of its rate tightening cycle. Also, the fed funds futures market shows a strong implied probability, 77.6 percent, that the fed funds rate range will remain at the current 2.25-2.50 percent through January 2020. 

Flatlining the fed funds rate is also consistent with our view of cooler U.S. economic growth through the remainder of this year. We now expect U.S. real GDP growth to ease from 2.9 percent in 2018, to 2.5 percent in 2019, and ease further to 2.2 percent in 2020. While we are forecasting continued U.S. economic growth through the near term, we also recognize that the odds of recession for the U.S over the next two years have materially increased. 

Finally, we can say that a flat fed funds rate forecast is consistent with expectations for overall lower interest rates in this expansion cycle. R-star (or R*) is the terminology that the Fed uses to denote the “natural “ rate of interest. It is more tightly defined as the real (inflation-adjusted) short-term interest rate expected to prevail when the U.S. economy is at full strength and inflation is stable. R-star is not directly measurable. It is only a theoretical construct. But the concept shows how the Fed’s thinking about interest rates has gradually changed over recent decades. The Fed’s estimates for R-star have dropped significantly from about 3.5 percent in the late 1980’s, to about 0.8 percent at the end of 2018. This estimate of R-star at 0.8 percent, plus inflation in the neighborhood of 2.0 percent, gives us an estimate of about 2.8 percent for a “neutral” fed funds rate. This is why the Fed thinks it is already close to neutral and is concerned about overshooting neutral if the global economy cools down and inflation falls. 

Inflation is now the key variable in the Fed’s policy calculation. The Fed’s preferred measure of inflation, the 12-month trimmed mean PCE price index has been hovering near 2 percent since last June. Even though oil prices have firmed early this year, they will likely exert little upward pressure on the trimmed mean PCE because big pushes and pulls in inflation are dropped out of the index so that it represents a “core” reading on prices. 

We expect overall inflation to remain calm, near 2 percent, for the remainder of this year, effectively removing the rationale for further rate increases. Wages are still going up due to the tight labor market, and there is still some upside risk to inflation from the Phillips Curve effect, that higher wages will eventually result in hotter inflation. However, to date, that remains a risk and not a fact. Further, the potential resolution of the U.S./China trade war this year represents a key downside risk for inflation. 

On March 20, the Fed will release a new dot plot showing the FOMC’s expectations for the fed funds rate over the next few years. We expect to see the March dot plot flatten compared to the dot plot from last December.

For a PDF version of this report, click here:  March 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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February PPI, CPI, Biz Confidence, March Mortgage Apps

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

Higher Energy Prices in February Countered by Price Cuts Elsewhere

 •The February Producer Price Index for Final Demand edged up by 0.1 percent
.•The Consumer Price Index gained 0.2 percent in February
.•The NFIB’s Small Business Optimism index improved modestly in February, up by 0.5 points to 101.7
.•Mortgage Applications increased by 2.3 percent for the week ending March 8. 

Upstream prices showed little momentum in February as the Producer Price Index for final demand gained just 0.1 percent for the month. Over the previous 12 months, the PPI for final demand was up by 1.9 percent, well below the recent peak year-over-year change of 3.4 percent from last July. A jump in energy prices was countered in the headline index by a drop in prices for transportation and warehousing services. The energy sub-index was up by 1.8 percent for the month as crude oil prices rallied. Wholesale food prices were down by 0.3 percent with lower prices for fresh and dried vegetables. The core index, PPI for final demand less foods, energy and trade inched up by 0.1 percent in February. Core PPI was up by 2.3 percent in February over the previous 12 months. 

We saw yesterday that downstream prices were also well behaved. The Consumer Price Index for February increased by 0.2 percent. Over the previous year the headline CPI was up by a sedate 1.5 percent. Consumer energy prices climbed through February, up by 0.4 percent for the month. Utility, vehicle and medical care commodity prices all dropped. Core CPI, all items less food and energy, was up just 0.1 percent in February and showed a 2.1 percent gain over the previous 12 months. 

Business optimism has been sliding, down every month from September through January. In February, the National Federation of Independent Business’s Small Business Optimism Index broke the losing streak by inching up slightly after the government shutdown came to an end. 

Total mortgage applications improved by 2.3 percent for the week ending March 8, buoyed by a rebound in purchase apps. Purchase apps were up by 4.3 percent after falling by 2.6 percent in the previous week. Refi apps were little changed, down 0.2 percent for the week ending March 8. On a four-week moving average basis, refi apps were down 5.5 percent from a year ago, while purchase apps were up by 2.2 percent from a year ago. 

Market Reaction: U.S. equity markets opened with gains. The 10-Year Treasury bond yield is up to 2.61 percent. NYMEX crude oil is up to $57.79/barrel. Natural gas futures are up to $2.82/mmbtu.

For a PDF version of this report, click here: February PPI, CPI, Biz Confidence, March 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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Comerica Economic Weekly, March 8, 2019

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

U.S. economic data was mixed for the week, still partly scrambled by the federal government shutdown through January. 

The biggest disappointment came from the March payroll numbers which showed a very weak gain of just 20,000 net new jobs for the month. The already strong December and January payroll numbers were revised up slightly. The unemployment rate for February came back down to 3.8 percent. So it was not a universally bad report. Wages picked up. Average hourly earnings were up by 3.4 percent over the previous 12 months. 

New claims for unemployment insurance fell by 3,000, to hit 223,000 for the week ending March 2. Continuing claims dropped by 50,000, to hit 1,755,000 for the week ending February 23. No problems here.

Nonfarm business productivity increased by a 1.9 percent annual rate in the fourth quarter, about the same as its year-over-year increase. Unit labor costs increased at a 2.0 percent clip in the fourth quarter and were up by 1.0 percent over the year. Productivity growth appears to be gradually improving. Stronger productivity growth means that increases in wages are less inflationary.  

Housing starts bounced back in January, up by 18.6 percent for the month, to a 1,230,000 unit annual rate. Single-family starts surged to their strongest rate since last May. Multifamily starts also improved for the month. Both series still appear to be range bound. Permits improved modestly in January, up by 1.4 percent with help from the multifamily segment. 

New home sales for December increased by 3.7 percent, to a 621,000 unit annual rate. The interesting story with the new homes sales data is the significant downward revision to the November sales rate, down to 599,000, after originally being reported at 657,000. The trend for new home sales still looks soft, and the December sales rate of 621,000 remains well below the recent peak of 712,000 from November 2017. The months’ supply of new homes on the market ticked up to 6.6 months’ worth in December, still moderately over-supplied.

The U.S. international trade gap widened noticeably in December, to -$59.8 billion from -$50.3 billion in November . Exports dropped by $3.9 billion in December, while imports increased by $5.5 billion. The wider-than-expected trade gap in November will be a slight negative factor in the Q4 GDP revision.  

The biggest positive for the week came from the ISM Non-Manufacturing Index for February, which increased more than expected, to a strong 59.7. This was the highest index value since November 2018. The index shows that the bulk of the U.S. economy is still performing well. The production and new orders sub-indexes both increased to strong levels in February. The employment sub-index eased, to a still-positive 55.2, consistent with ongoing hiring in the service sector. Anecdotal comments were generally positive. However, some firms were concerned about trade tariffs. All 18 reporting industries said they grew in February. 

The Federal Reserve will have a monetary policy meeting over March 19/20. There is a near-universal expectation of no change to the fed funds rate at the upcoming meeting. We expect to hear more about the Fed’s plans for balance sheet reduction. We expect balance sheet reduction to end this year after achieving a target level of about $3.5 trillion. We also look forward to a new dot plot, which we expect to be flatter, consistent with one rate hike this year at most. Jay Powell will also host a press conference at the conclusion of the meeting.

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

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

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February 2019 U.S. Employment

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

The Clunk Heard Around the World

*     Payroll Employment increased by just 20,000 jobs in February, well below expectations.
*     The Unemployment Rate for February fell back to 3.8 percent.
*     Average Hourly Earnings increased by 11 cents in February and were up 3.4 percent over the year.
*     The Average Workweek in February decreased by 0.1 hours to 34.4 hours.

Payroll job growth in February was much weaker than expected, registering a net gain of just 20,000 jobs for the month. This was well below expectations of about 200,000 net new jobs. The clunker in February comes after a very strong January number, now revised up to show a net gain of 311,000 net new jobs. December numbers were revised up too, now showing a solid 227,000 net new jobs. Every now and then the payroll numbers come in much weaker than expected. It is not surprising that this happened on the heels of strong data from December and January. Also, the partial federal government shutdown through January was somewhat disruptive for the data collection agencies. However, the February clunker comes as other risk factors for the U.S. economy appear to be increasing. Notably, rest-of-word GDP growth is being challenged by lower expectations for both China and for Europe. The household survey of employment was much stronger, showing a net gain of 255,000 jobs in February, while the labor force contracted by 45,000 workers. This brought the unemployment data back down to 3.8 percent in February. Pay went up by 11 cents per hour. Over the last 12 months, average hourly earnings are up by 3.4 percent. The average workweek pulled back slightly in February to 34.4 hours. A weak month does not make a trend. We will be monitoring labor data very closely over the next few months to see where it goes from here. We expect to see a bounceback in payroll job growth in March.

Job growth was weak across many industries in February. Mining and logging gave up 5,000 jobs in February. Construction dropped 31,000. Manufacturing was still positive, up 4,000 for the month. Retail trade employment declined by 6,100 in February, consistent with the rash of store closures announced in recent weeks. Transportation/warehousing industries shed 3,000 workers. Utilities and information services were little changed. Financial services added 6,000 jobs on net. Professional/business services looked good, adding 42,000 net new jobs. Education/healthcare was anemic, up by just 4,000 jobs. Leisure/hospitality has been a consistent positive recently but was unchanged in February. Government employment fell by 5,000 workers in February.

The odds of a fed funds rate hike being announced at the upcoming Federal Open Market Committee meeting over March 19/20 were very low before today’s jobs report. Now they are miniscule.

Market Reaction: U.S. equity markets opened with losses. The 10-Year T-bond yield is down to 2.63 percent. NYMEX crude oil is down to $54.70/barrel. Natural gas futures are down to $2.86/mmbtu.

For a PDF version of this report, click here: February 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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Feb. 2019 ISM Non-Manufacturing and Manufacturing Indexes

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

U.S. Service Sector Index Rebounds Strongly

*     The ISM Non-Manufacturing Index for February increased to a strong 59.7 percent.
*     The ISM Manufacturing Index for February dipped to a still-positive 54.2.
*     New Home Sales for December increased by 3.7 percent to a 621,000 unit annual rate.

The ISM Non-Manufacturing Index for February increased more than expected, to a strong 59.7. This was the highest index value since November 2018. The index shows that the bulk of the U.S. economy is still performing well, even though downside risk factors have increased this year. The production and new orders sub-indexes both increased to strong levels in February. The employment sub-index eased, to a still-positive 55.2, consistent with ongoing hiring in the service sector. Anecdotal comments were generally positive. However, some firms were concerned about trade tariffs. All 18 reporting industries said they grew in February.

The ISM Manufacturing Index for February fell to a still moderately positive 54.2, well down from the recent peak of 60.8 from August 2018. The production, new orders and employment sub-indexes all remained above the break-even 50 mark. Most anecdotal comments were positive, although some comments mentioned heightened uncertainty and slowing demand. Sixteen out of 18 industries reported growth in February. The only industry reporting contraction was nonmetallic mineral products, which are often linked to construction.

New home sales for December increased by 3.7 percent, to a 621,000 unit annual rate. The interesting story with the new homes sales data is the significant downward revision to the November sales rate, down to 599,000, after originally being reported at 657,000. New home sales data has been delayed due to the government shutdown. Now with the major revision to the November numbers, the story is still less than clear. What we can say is that the trend for new home sales still looks soft, and that the December sales rate of 621,000 remains well below the recent peak of 712,000 from November 2017. The months’ supply of new homes on the market ticked up to 6.8 months’ worth in December, still moderately over-supplied.

Market Reaction: U.S. equity markets open with losses. The yield on 10-Year Treasury bonds is up to 2.74 percent. NYMEX crude oil is up to $56.74/barrel. Natural gas futures are down to $2.84/mmbtu.

For a PDF version of this report, click here: Feb. 2019 ISM Non-Manufacturing and Manufacturing Indexes, Dec. New Home Sales

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

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Comerica Economic Weekly, March 4, 2019

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

U.S. economic data was mixed last week. Two things are clear about the U.S. economy. First, it has lost a little momentum heading into 2019. Second, it is still expanding. We expect it to keep expanding through the remainder of this year. 

U.S. real GDP growth eased from a 3.4 percent annualized rate in 2018Q3, to 2.6 percent in Q4, about as expected. The biggest contributor to Q4 real GDP growth was consumer spending, which increased at a healthy 2.8 percent annual rate. Importantly, non-residential fixed investment bounced back in Q4 after weak growth in Q3.Inventories were a small boost to Q4 GDP. International trade was a small drag. Total government spending increased slightly in Q4 as a large increase in federal government defense spending was countered by a large decline in federal nondefense spending and a small dip in state and local government spending. 

Nominal personal income eased by 0.1 percent in January, weighed down by the government shutdown. 

Consumer confidence rebounded in February after falling for three consecutive months, according to The Conference Board. 

Light vehicle sales were little changed in February, remaining at a 16.6 million unit annual rate. 

The ISM Manufacturing Index for February fell to a still moderately positive 54.2, well down from the recent peak of 60.0 from June 2018. The production, new orders and employment sub-indexes all remained above the break-even 50 mark. The only industry reporting contraction was nonmetallic mineral products, which are often linked to construction. 

Construction spending fell by 0.6 percent in December. Private residential construction was down 1.4 percent due to weaker single-family building. Private non-residential construction was up by 0.4 percent. Government projects dipped by 0.6 percent.

The North American rig count dipped in late February to 1,038 active rigs. We expect firmer oil prices to stabilize the rig count in coming months. 

The Case-Shiller U.S. National Home Price Index increased by 0.3 percent in December and was up by 4.7 percent over the previous 12 months. Home price gains slowed through the second half of 2018 in most residential markets as demand eased. 

Housing starts were soft at year end 2018, but forward-looking permits data were in better shape. Total housing starts fell noticeably in December, down by 11.2 percent to a 1,078,000 unit annual rate. This is the weakest new home construction rate since September 2016. Single-family starts were down by 6.7 percent, to a 758,000 unit annual rate. Multifamily starts fell by 20.4 percent, to a weak 320,000 unit rate. Total permits were little changed for the month, up 0.3 percent to an 1,326,000 unit annual rate. Lower mortgage rates are expected to support demand for new homes this spring, which will motivate home construction in the near-term.

In his Semiannual Monetary Policy Report to Congress, Federal Reserve Chairman Jay Powell said that current economic conditions are healthy, and the economic outlook is favorable. However, Powell noted that cross-currents and conflicting signals have emerged in early 2019. He reiterated that the timing of any further interest rate increases would depend on economic data and the outlook. His prepared testimony was less detailed on balance sheet reduction than the recently released minutes of the January 29/30 FOMC meeting.

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

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

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Comerica Bank's Texas Index Dips

February 27, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s Texas Economic Activity Index decreased by 0.1 percent in December to 136.5. December’s index reading is 41 points, or 43 percent, above the index cyclical low of 95.5. The index averaged 134.9 points for all of 2018, 6.1 points above the average for 2017. November’s index reading was revised to 136.7.

The Comerica Bank Texas Economic Activity Index decreased slightly in December, down 0.1 percent. This ended a three-month winning streak for the Texas Index. The partial federal government shutdown over December and January is still impacting the economic data stream, so we may see larger-than-normal historical revisions in the next few months as data quality improves. In December, six out of nine index components were positive, including payroll employment, housing starts, house prices, industrial electricity demand, rig count and hotel occupancy. Only three components were negatives for December. They were unemployment insurance claims (inverted), total state trade and sales tax revenues. The volatility in the unemployment insurance claims dominated the other positive factors. We expect volatility to diminish in the months ahead, allowing the Texas index to resume its positive overall track. Crude oil prices have firmed up significantly since they fell to about $43 in late December. With WTI currently near $55 per barrel, we expect energy-related infrastructure development to continue to be a positive for the Texas economy through the first half of 2019. The large number of drilled but uncompleted wells in Texas represents excess capacity for Texas oil production. Because of the excess capacity, the overall rig count may remain flat to down in the near-term even with firmer oil prices.

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

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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