Comerica Economic Weekly, November 9, 2018

November 9, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Most U.S economic metrics released over the last week were well behaved, with one notable exception.

The Producer Price Index for October, came in much warmer than expected, gaining 0.6 percent for the month. The hot October PPI data broke a string of three consecutive sedate months for producer inflation. The glaring headline brought fears of inflation to mind given the current mix of trade tariffs, rising wage rates and higher interest rates.

However, it was energy  that drove the headline PPI higher, counterintuitively since oil prices have been sliding recently. The energy sub-index for PPI Final Demand Goods was up by 2.7 percent in October after falling by 0.8 percent in September. Crude oil prices climbed  through late September into early October, with WTI crude briefly passing $76 per barrel on October 3. This lifted the monthly average oil price in October relative to September before oil prices began their recent slide. 

We expect oil prices to be a major drag on the PPI in November. As of November 9, WTI crude was down to  near $59 per barrel. Non-oil components of the PPI were sedate in October, as they have been in recent months.

Labor market indicators remain positive. Initial claims for unemployment insurance eased by 1,000 for the week ending November 3, to hit 214,000. Continuing claims dropped by 8,000 for the week ending October 27, to hit 1,623,000. 

The Job Openings and Labor Turnover Survey (JOLTS) for September showed a small tick down in the rate of job openings, to a still-strong 4.5 percent. Likewise, the hiring rate and the separations rate also ticked down slightly to still-strong rates.

The ISM Non-Manufacturing Index for October dipped from a very strong 61.6 in September to a still-strong 60.2 in October. All 17 reporting industries expanded in October. Anecdotal comments remains focused on uncertainty around international trade. 

Total mortgage applications dropped by 4.0 percent for the week ending November 2. Purchase apps lost another 5.0 percent after falling by 1.5 percent the week before. Refi apps give up 2.5 percent for the week. On a four-week moving average basis, refi apps were down 34.4 percent from a year ago, while purchase apps were down by 3.6 percent. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage climbed to 5.15 percent. 

Consumer credit levels remain well behaved. In September, revolving consumer credit was up by 3.8 percent over the previous 12 months. Non-revolving consumer credit was up by 5.2 percent over the year. 

The University of Michigan’s preliminary Consumer Sentiment Index for November eased by 0.3 to a still-positive 98.3. The index looks range-bound at a positive level over the course of 2018. We expect consumer sentiment to remain positive through the end of the year.

The Federal Open Market Committee meeting of November 7/8 was a nonevent for financial markets, as widely expected. We believe that the Fed remains on track to increase the fed funds rate range by 25 basis points at the next FOMC meeting over December 18/19. We look for the Fed to maintain “gradualism” by sitting out the January 29/30 FOMC meeting and then raising the fed funds rate range by another 25 basis points at the March 19/20 FOMC meeting. 

 

For a PDF version of this report, click here:  Comerica Economic Weekly, November 9, 2018 

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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November 2018 TX Economic Outlook

November 9, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Texas Is Well Positioned for Growth

The Texas economy is improving rapidly after limping through 2015 and 2016. Support is coming from a revitalized energy sector, a stronger U.S. economy, an improving Houston-area economy and ongoing in-migration to the state. Crude oil prices increased through 2018, from near $58/barrel for WTI crude in early January to $76/barrel in early October. Along with stronger pricing, the Texas drilling rig count increased steadily through the first half of 2018, from 453 rigs in early January to 536 rigs in early June. Since June, the rig count has stabilized near 530 rigs through early November. The rig count is only a rough proxy for all oil field activity, indicating that conditions in the state’s energy sector have improved significantly since bottoming out in 2016. The U.S. economy has also improved. We expect the strong 4.2 percent real GDP growth from Q2 will be the high water mark for the U.S. economy for 2018 and 2019. It came at a good time for Texas, increasing demand for Texas goods and services as Houston was recovering from the floods after Hurricane Harvey. Houston suffered with back-to-back blows coming from a weak oil market in 2014 and Hurricane Harvey. Since late 2017, job growth in the Houston metropolitan area has re-engaged and is on par with 2012 and 2013, when Houston generated about 9,000 net new jobs per month. Texas was still attracting about 50,000 new residents a quarter through 2017. However, as we get to the end of the intercensal period from 2010 to 2020, demographic estimates become more uncertain. We expect the 2020 census data to confirm ongoing strong in-migration to Texas.

For a PDF version of this article, please click here: November 2018 TX 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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November 2018 MI Economic Outlook

November 9, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Michigan Manufacturing Uncertainty Lower as USMCA Set to Replace NAFTA

Trade uncertainty for many Michigan manufacturers has been reduced with the completion of the new U.S.-Mexico-Canada Agreement. The new trade deal remains to be ratified. The recent U.S. mid-term election does not appear to raise significant new hurdles for deal ratification by all three countries. U.S.-China trade relations remain contentious. Again, the mid-term election results do not appear to be changing the stance of the Trump Administration towards China. Michigan’s auto industry received a shot in the arm as U.S. auto sales increased to a 17.4 million unit rate in September and increased again to 17.5 million in October. Auto and light truck assemblies for the entire U.S. increased to an 11.1 million unit rate in August and then increased again to 11.4 million in September. We continue to look for a gradual decline in U.S. auto sales, from 17.1 million units in 2018, to 16.8 million units in 2019. Consumer conditions will remain strong, supported by ongoing job growth, increasing wages, high consumer confidence and positive wealth effects. A negative factor for auto sales is the tepid housing market which is a downer for both general household sales and pickup truck sales to construction workers. Also, we expect auto finance rates to continue to creep up as the Federal Reserve increases the benchmark fed funds rate. The days of zero percent auto financing are coming to an end. According to Edmunds, zero percent auto loans accounted for just 5.6 percent of the total in September, down from 10.1 percent of loans a year earlier. With flattish auto sales and housing markets, we expect the Michigan economy to show cooler growth in 2019, with state-level real GDP growth stepping down to 1.7 percent for the year. This will be enough to keep job growth on track for the service sector and keep unemployment very low.

For a PDF version of this report, click here: November 2018 MI 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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November 2018 FL Economic Outlook

November 9, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

The Florida Economy Gained Momentum in 2018

The Florida economy continues to show strength as the economic cycle matures. Florida businesses are benefitting from tax reform and the state’s competitive cost structure. This in turn has led to job opportunities which continue to draw workers into the state. The pace of hiring in 2018 has been particularly strong as Florida added 182,400 jobs through September. This is more jobs than the state created in all of 2017. With the state’s unemployment rate sitting at 3.5 percent as of September, we expect job growth to moderate somewhat heading into 2019 as Florida’s labor markets continue to tighten. The Florida economy also continues to benefit from improving domestic demand. U.S. consumer demand and consumer sentiment are strong positives and gas prices remain relatively cheap supporting increased travel into the state. According to Visit Florida, the number of domestic travelers visiting Florida was up 6.8 percent year to date in Q2. An overall growing U.S. economy also supports Florida’s housing market as individuals look for either rental properties or move into the state for retirement. Florida’s housing market continues to show positive momentum, bucking the national trend which has been cooler heading into the second half of 2018. Growing demand for Florida housing should support ongoing construction into next year. While Florida economic activity was solid through Q3, it is uncertain how Hurricane Michael will impact the state’s data for Q4. U.S. employment totals for October did not appear to be impacted by the storm. As with most natural disasters, while a storm can lead to business and personal losses, total economic losses are challenging to measure. In well insured areas, the rebuilding effort from hurricane damage often leads to renewed economic momentum.

For a PDF version of this report, click here: November 2018 FL Economic Outlook

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

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November 2018 CA Economic Outlook

November 9, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Risk Factors Increase for California’s Economic Outlook

The California economy lost some momentum in 2018 and we expect to see a cooler state economy in 2019. As the current economic cycle matures, downside risk factors are increasing for California. October saw steep declines in major U.S. stock indices as volatility in financial markets spiked. Leading the way down were heavy losses in major technology stocks. The Dow Jones Technology Index was down 15.3 percent from peak to trough in October. Companies continue to benefit from corporate tax cuts, however rising operating and borrowing costs may squeeze corporate profits in 2019. California housing markets cooled in late 2018. According to the California Association of Realtors, single-family home sales were down 12.4 percent from a year ago in September. The supply of unsold single-family homes increased to 4.2 months worth in September. We expect to see weaker demand for housing in 2019, primarily due to declining affordability. This will translate into cooler house price appreciation going forward. The Case-Shiller Home Price Index for San Diego posted two consecutive monthly declines in July and August. Lastly, the trade outlook remains mixed. The new U.S.-Mexico-Canada Agreement, which still needs to be ratified by each country, is a positive for state trade activity. However, trade tensions with China ramped up in the third quarter as the U.S. implemented additional tariffs. The results of the recent mid-term election do not appear to impact either the USMCA or U.S.-China trade negotiations. President Trump is expected to meet with China General Secretary Xi Jinping later in November.

For a PDF version of this report, click here: November 2018 CA Economic Outlook

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

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November 2018 AZ Economic Outlook

November 9, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Arizona’s Economic Momentum to Continue

The Arizona economy is expected to continue improving into 2019. Our outlook is supported by strong population growth and ongoing job growth. We expect net migration into the state to continue at a moderate pace as the state’s comparatively low taxes and affordable house prices remain significant draws, especially compared with nearby California. We expect to see strong job growth through Q4, supported by gains in the construction, government, and private services sectors. Construction employment is expected to improve further, motivated by a tight housing market, particularly around Phoenix. We forecast Arizona’s real gross domestic product growth to be above the U.S. average through the last half of 2018 and into 2019. However, long-run hurdles for the Arizona economy persist, including low household income and education attainment, which impact spending and the skillsets of the labor force. Despite a high profile teacher walkout in Q2, educational funding continues to face headwinds in Arizona. Voters passed Proposition 126 this November, which prohibits Arizona’s state and local governments from levying sales taxes on most services. Critics of the measure believe it will put additional strain on the state’s educational system. Meanwhile, the resolution of the U.S.-Mexico-Canada Agreement on trade, which remains to be ratified by each country, removes some uncertainty for Arizona businesses moving forward. According to the Census Bureau, 36 percent or $7.6 billion worth of Arizona exports are sent to Mexico, with 10 percent or $2.2 billion to Canada.

For a PDF version of this report, click here: November 2018 AZ Economic Outlook

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

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November 2018 U.S. Economic Outlook

November 5, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. Economic Metrics Continue to Impress, Reinforcing Higher Interest Rates

U.S. economic metrics continue to be impressive. The economy added 250,000 net new payroll jobs in October, putting the average monthly gain for 2018 through October at 212,500. It will be increasingly difficult to maintain that strong pace of job growth going forward because the pool of available labor is getting smaller. Increased competition for labor is pushing wages up. Average hourly earnings for private sector workers were up by 3.1 percent in October, over the previous 12 month period. This is the strongest year-over-year gain in wages since April 2009. The Federal Reserve Bank of Atlanta’s wage growth tracker is stronger at 3.5 percent wage growth.

U.S. businesses are enjoying strong demand growth. Real GDP expanded at a 3.5 percent annualized rate in the third quarter, after growing at a 4.2 percent annual rate in Q2. Industrial capacity utilization appears to be closing in on a cyclical high. The cyclical high points in overall capacity utilization have been trending down since the late 1960s, so 78 percent capacity utilization in September 2018 may be on par with 88 percent capacity utilization from early 1967.

With labor markets tight, and industrial capacity utilization high, there is relatively little slack in this economy. In a low slack economy the potential for demand-pull inflation is higher. We believe that the Federal Reserve will respond to the increased potential for demand-pull inflation with more interest rate hikes over 2019. We expect the Fed to leave interest rates unchanged at the Federal Open Market Committee this week over November 7/8. We look for the next fed funds rate hike to come at the conclusion of the December 18/19 FOMC meeting. We have three more 25 basis point fed funds rate hikes on our interest rate forecast for 2019, beginning on March 20, 2019. The implied odds of a December 19 rate hike have fallen in recent weeks due to the sell-off in U.S. and global stock markets. According to the CME, they are down to about 73 percent. We expect the implied odds to increase quickly after the stock market stabilizes and the dust settles after the mid-term election.

With wages going up, interest rates going up and import prices going up, it is fair to say that corporate profits are facing some headwinds. Fortunately, corporate tax reform came at an auspicious time and helped to boost corporate profits when they otherwise would have been squeezed. As of 2018Q2, after-tax corporate profits were up by 16 percent over the previous year. However, the support to corporate profits from tax reform will fade in 2019. Meanwhile, the pressure from wages and interest rates will increase. Import price pressure from tariffs could go either way depending on trade negotiations between the U.S. and China.

Global economic growth is slowing. The European Union posted weak Q3 GDP of just 0.2 percent over the previous quarter. Some of that can be blamed on a hiccup in German auto production due to new emissions tests. Italian GDP was unchanged in Q3 over Q2. China’s manufacturing sector is barely expanding. The Caixin China Manufacturing Purchasing Managers Index inched up from a flat 50 in September, to a faintly positive 50.1 in October. China’s service sector is also showing reduced growth. The trend in China’s economy looks ominous with likely spillover effects on other Asian economies. Japanese industrial production fell by 1.1 percent in September. South Korea posted a 2.5 percent decline in industrial production in September.

So even with current strong U.S. economic metrics, we believe that downside risk factors for the U.S. economy are increasing. Cooler U.S. and global economic growth in 2019, combined with higher interest rate and higher labor costs could start to put pressure on corporate profits and increase stress on corporate debt markets.

For a PDF version of this report, please click here: November 2018 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, November 2, 2018

November 2, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

The week ended on a positive note as U.S. job growth for October came in stronger than expected. 

U.S. payrolls expanded by 250,000 net new jobs in October. The unemployment rate stayed at 3.7 percent in October, as expected. Wage pressure was moderate. Average hourly earnings increased by 0.2 percent for the month and were up by 3.1 percent over the previous 12 months. The labor force participation rate ticked up to 62.9 percent, little changed over the last year. 

The September income and spending data shows sluggish real income growth at the end of the third quarter. Nominal personal income was up by 0.2 percent in September. After adjusting for inflation and taxes, real disposable income was up by just 0.1 percent in September, the weakest gain there since last April. Undaunted, consumers increased their spending by more than their incomes increased.  Real consumer spending was up by a moderate-to-strong 0.3 percent in September. The personal saving rate went down to 6.2 percent. It was as high as 7.4 percent in February of this year. That is not a bad number and the trend is unclear at this time. The Personal Consumption Expenditure (PCE) Price Index increased by just 0.1 percent for the fourth consecutive month. Over the previous 12 months, the PCE Price Index was up by 2.0 percent and the core PCE Price Index (less food and energy) was also up by 2.0 percent over the year. 

The U.S. international trade gap widened in September to -$54.0 billion. Imports increased by $3.8 billion as exports expanded by $3.1 billion. The strong dollar will keep pressure on the trade gap this fall. 

The ISM Manufacturing Index slipped from a strong 59.8 in September to a still-good 57.7 in October. Nine out of ten sub-indexes are still above the break-even 50 mark, including new orders, production and employment. Of the 18 reporting industries, 13 said that they expanded in October. The four contracting industries were wood products, primary metals, nonmetallic products and fabricated metal products. Tariffs are still a focus of the anecdotal comments in the October report. 

Nonfarm business productivity increased at a 2.2 percent annual rate in Q3, below the 3.0 percent annualized gain of Q2. On a year-over-year basis, productivity was up by 1.3 percent in 2018Q3, about where productivity growth has been since the end of 2016. Unit labor costs increased at a 1.2 percent annualized rate in Q3 after declining at a 1.0 percent rate in Q2. 

Total construction spending for September was unchanged from August. Private residential construction spending increased by 0.6 percent for the month, with help from multifamily projects. Private nonresidential spending was little changed, up by 0.1 percent in September. Public construction spending fell by 0.9 percent for the month. Over the previous 12 months overall construction spending is still up by 7.2 percent. 

Initial claims for unemployment insurance were little changed, easing by 2,000 for the week ending October 27, to hit 214,000. Continuing claims fell by 7,000, to hit 1,631,000 for the week ending October 20.

Auto sales increased in October to a 17.5 million unit rate. Strong consumer conditions appear to be supporting sales. Higher materials, labor and capital costs are headwinds for the auto industry. 

The Case-Shiller U.S. National House Price Index increased by 5.8 percent year-over-year in August.

For a PDF version of this report, click here:  Comerica Economic Weekly, November 2, 2018

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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October 2018 U.S. Employment, September International Trade

November 2, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Strong Job Growth Keeps Fed “Gradualism” Engaged

*     Payroll Employment increased by 250,000 jobs in October. September was revised down to +118,000.
*     The Unemployment Rate for October was unchanged at 3.7 percent.
*     Average Hourly Earnings increased by 0.2 percent in October and were up 3.1 percent over the year.
*     The Average Workweek in October increased to 34.5 hours.
*     The U.S. Trade Gap widened in September to $54.0 billion.

U.S. payrolls expanded by a stronger-than-expected 250,000 net new jobs in October. Some of the good news was bought back by a downward revision in September, to now show a net gain of 118,000 for that month. August was revised up to show a very strong +286,000. The average net payroll gain over the last three months is 218,000 which is very strong considering how tight labor markets are. Hurricanes in September and October may have contributed to recent volatility in the jobs numbers. However, the Bureau of Labor Statistics said Hurricane Michael in October did not impact the response rates for their surveys. The household survey of employed showed a very strong increase of 600,000 jobs and similar strong gain of 711,000 in the labor force. The U.S. unemployment rate stayed at 3.7 percent in October, as expected. Wage pressure was moderate. Average hourly earnings increased by 0.2 percent for the month and were up by 3.1 percent over the previous 12 months. The labor force participation rate ticked up to 62.9 percent, little changed over the last year.

The establishment detail shows broad-based job growth across industries. Mining and logging dug up 5,000 net new jobs in October. Construction built 30,000. Manufacturing assembled a strong net gain of 32,000 jobs for the month. Wholesale trade added 9,100 net new jobs. Retail was soft, ringing up only 2,400 net new jobs in October. Utilities were stable, adding 1,200 jobs. Information services gained 7,000 jobs, as did financial services. Professional and business services accounted for an additional 35,000 net new jobs. Education and healthcare gained 44,000 jobs. Leisure and hospitality served up 42,000 jobs. The government sector added 4,000.

Job growth in the U.S. remains strong. Year-over-year wage gains are inching up. The Federal Reserve will continue on its path of “gradualism”. As long as the stock market stabilizes, which we expect it to do, the Fed will remain on track to deliver the fourth 25 basis point increase in the fed funds rate range on December 19. No rate hike at the upcoming November 7/8 FOMC meeting.
The U.S. international trade gap widened in September to -$54.0 billion. Imports increased by $3.8 billion as exports expanded by $3.1 billion. The strong dollar will keep pressure on the trade gap this fall.

Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is up to 3.18 percent. NYMEX crude oil is down to $63.39/barrel. Natural gas futures are down to $3.22/mmbtu.

For a PDF version of this report, click here: October 2018 U.S. Employment, September International Trade

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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October 2018 ISM MF Index,UI Claims,Q3 Productivity,Sept. Construction

November 1, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Manufacturing Conditions Still Positive

•    The ISM Manufacturing Index for October slipped to a still-positive 57.7 percent.
•    Productivity increased at a 2.2 percent annualized rate in the third quarter.
•    Construction Spending in September was unchanged.
•    Initial Claims for Unemployment Insurance eased by 2,000, to hit 214,000 for the week ending Oct. 27.

The ISM Manufacturing Index slipped from a strong 59.8 in September to a still-good 57.7 in October. History shows that the index usually does not stay at or above 60 for very long. The enduring strength that we have seen in the manufacturing index since August 2017 is unusual. Nine out of ten sub-indexes are still above the break-even 50 mark, including new orders, production and employment. This indicates that most manufacturers are still enjoying positive conditions. Customers’ inventories remain lower than expected. Of the 18 reporting industries, 13 said that they expanded in October. The four industries that reported contraction were wood products, primary metals, nonmetallic products and fabricated metal products. A cooler construction industry comes to mind as a possible common factor for those four contracting industries. Tariffs are still a focus of the anecdotal comments in the October report.

Nonfarm business productivity increased at a 2.2 percent annual rate in the third quarter, below the 3.0 percent annualized gain of the second quarter. On a year-over-year basis, productivity was up by 1.3 percent in 2018Q3 over 2017Q3. The year-over-year gain of 1.3 percent is about where productivity growth has been since the end of 2016. Unit labor costs increased at a 1.2 percent annualized rate in Q3 after declining at a 1.0 percent rate in Q2. Productivity growth remains weak in this expansion. To say it another way, businesses are still relying, to a large extent, on increasing employment to expand output, and relying relatively less on investment in machines and software. As available labor becomes even scarcer moving forward, this will become a more challenging method of expanding output.

Total construction spending for September was unchanged from August. Private residential construction spending increased by 0.6 percent for the month, with help from multifamily projects. Private nonresidential spending was little changed, up by 0.1 percent in September. Public construction spending fell by 0.9 percent for the month. Over the previous 12 months overall construction spending is still up by 7.2 percent.

Labor market indicators continue to show very tight conditions. Initial claims for unemployment insurance were little changed, easing by 2,000 for the week ending October 27, to hit 214,000. Continuing claims fell by 7,000, to hit 1,631,000 for the week ending October 20..

Market Reaction: U.S. equity markets are positive. The yield on 10-Year Treasury bonds is down to 3.14 percent. NYMEX crude oil is down to $63.74/barrel. Natural gas futures are down to $3.28/mmbtu.

For a PDF version of this report, click here: October 2018 ISM MF Index, UI Claims, Q3 Productivity, Sept. 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 Bank's Texas Index Little Unchanged

October 31, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s Texas Economic Activity Index was unchanged in August to 135.8. August’s index reading is 40 points, or 42 percent, above the index cyclical low of 95.5. The index averaged 128.5 points for all of 2017, 3.9 points above the average for 2016. July’s index reading was revised to 135.8.

The Comerica Bank Texas Economic Activity Index was unchanged in August. Revised data now show a small decline in the index level in July. Over the 12 months ending in August, the Texas Index is still up by 5.9 percent, consistent with very strong state-level GDP growth for Texas over the last year. The components of the Texas Index were mixed in August. The four positive components for the month were nonfarm employment, unemployment insurance claims (inverted), housing starts and total state trade. The four negative components were house prices, industrial electricity demand, the Texas rig count and hotel occupancy. The sales tax revenue sub-index was unchanged in August. The Texas economy grew strongly through the first half of 2018. Now it looks like growth is still very good, but easing. This is consistent with the cooling seen in our Michigan and California Indexes and is consistent with the pattern of U.S. GDP growth this year. Crude oil prices have declined to about $66 per barrel at the end of October, from above $76 per barrel early in the month. We look for cooler global oil demand growth in 2019 as economic growth in the U.S., Europe and China eases. Even so, we expect oil-related investment in West Texas to continue, including infrastructure and transportation-related projects.

For a PDF version of this article, please click here: Comerica Bank's Texas Index Little Unchanged

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

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Comerica Bank's Michigan Index Drops

October 31, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s Michigan Economic Activity Index fell again in August to a level of 118.1. August’s reading is 20 points, or 21 percent, above the index cyclical low of 97.9. The index averaged 118.2 points for all of 2017, one point above the index average for 2016. July’s index reading was 118.4.

Comerica Bank’s Michigan Economic Activity Index fell for the third consecutive month in August. This is the first three-month drop for the Michigan Index since early 2015. The August index value of 118.1 is little changed since the end of 2016, telling us that the Michigan economy has lost momentum over the last two years, coincident with the levelling of U.S. auto sales that began in late 2015. In 2018 it looks like the trend in auto sales is down even though they bounced back in September, to a 17.4 million unit rate. A key missing piece for the Michigan economy is momentum in the housing sector. Residential construction activity remains subdued. House prices have advanced in this business cycle, but appear to have stalled out this summer. Only three out of nine index components were positive in August. They were nonfarm employment, auto production and state sales tax revenues. The six declining components were unemployment insurance claims (inverted), housing starts, house prices , industrial electricity sales, total state trade and hotel occupancy. Consumer conditions in the U.S. are good with strong labor markets and high consumer confidence. However, Michigan’s auto sector has some headwinds in the form of higher materials and labor costs and higher interest rates. The resolution of the U.S.-Mexico-Canada Trade Agreement removes some uncertainty for many Michigan businesses. The pact remains to be ratified by each country.

For a PDF version of this article, please click here: Comerica Bank's Michigan Index Drops

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 Extends Gains

October 31, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s Florida Economic Activity Index increased 0.3 points in August to a level of 115.1. August’s index reading is 17 points, or 17 percent, above the index cyclical low of 98.5. The index averaged 113.1 in 2017, 1.4 points above the average for all of 2016. July’s index reading was 114.8.

The Comerica Bank Florida Economic Activity Index improved again in August, now up for the third consecutive month. Gains were widespread for the month. Eight of the nine index components were positive in August. They were nonfarm payrolls, unemployment insurance claims (inverted), housing starts, house prices, industrial electricity demand, total state trade, hotel occupancy and sales tax revenue. Total enplanements was the only index component down for the month. We saw a slowdown in some of the index components in early 2018. However it appears to be more of a returning to trend growth following a spike in activity after last year’s active hurricane season, rather than a deterioration in economic conditions. Economic fundamentals remain solid for the Florida economy. Businesses continue to benefit from the state’s competitive cost structure and federal tax cuts implemented earlier this year. Job opportunities and the lower cost of living are drawing in more workers and retirees. This boosts demand for local goods and services creating a strong virtuous cycle. As some of the index components approach pre-hurricane levels we expect to see job growth drive our index higher. Monthly job growth remained positive through September. However, Hurricane Michael’s direct hit on the Panhandle may impact Florida’s October employment data.

For a PDF version of this article, please click here: Comerica Bank's Florida Index Extends Gains

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

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Comerica Bank's California Index Ticks Up

October 31, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s California Economic Activity Index increased by 0.1 points in August to 123.8. August’s reading is 26 points, or 26 percent, above the index cyclical low of 97.7. The index averaged 121.2 points in 2017, 2.4 points above the average for all of 2016. July’s reading was revised to 123.7.

Comerica Bank’s California Economic Activity Index moved up slightly in August, posting its first monthly gain since March. Six of the eight sub-indexes were positive in August. They were nonfarm employment, unemployment insurance claims (inverted), housing starts, house prices, industrial electricity demand and the Dow Jones technology stock index. The two negative sub-indexes for August were total state trade and hotel occupancy. The slowdown in new construction has been a major drag on our California Index in recent months. Housing starts saw an early 2018 runup which quickly plateaued in March followed by four consecutive monthly declines between April and July. While the month-to-month movement has trended down since early spring, California housing starts remain up 17 percent year-to-date in August. California total trade also continues to slump, now down for six consecutive months. The announcement of a new trade deal between the U.S., Mexico and Canada is a positive development, yet it still needs to be ratified by each country. There is growing concern that the U.S. will impose tariffs on the remaining $257 billion of Chinese imports if progress is not made when President Trump meets with Xi Jinping next month. The headwinds which have impacted the state’s housing and trade sectors are expected to persist into 2019, which will limit the upside potential to our California Index in the near-term.

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

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

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Comerica Bank's Arizona Index Inches Up

October 31, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s Arizona Economic Activity Index increased by 0.2 percentage points in August to a level of 112.7. August’s index reading is 13 points, or 13 percent, above the index cyclical low of 99.5. The index averaged 111.1 points for all of 2017, one point above the average for 2016. The July index reading was 112.5.

The Comerica Bank Arizona Economic Activity Index inched up in August after breaking a string of five consecutive monthly gains in July. Seven out of nine sub-indexes were positive in August. They were nonfarm employment, unemployment insurance claims (inverted), housing starts, house prices, total state trade, hotel occupancy, and state sales tax revenue. The two negative components were industrial electricity demand and enplanements. Arizona job growth continued to accelerate through September, with the labor market looking stronger in 2018 than it did in 2017. Through the first nine months of the year, 9,050 jobs per month have been added, on average. However, the state unemployment rate has remained largely unchanged at 4.7 percent in September, which is still well above the state’s low of 3.6 percent from mid-2007. Of note, the Tucson metro area, which has traditionally trailed growth in Phoenix, has now regained all the jobs it lost during the recession between 2007 and 2011. Meanwhile, the resolution of the U.S.-Mexico-Canada Trade Agreement, which remains to be ratified by each country, removes some uncertainty for Arizona businesses. Mexico and Canada are the state’s two largest trade partners, accounting for 36 percent and 10 percent of its export purchases, respectively.

For a PDF version of this report, click here: Comerica Bank's Arizona Index Inches Up

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

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September 2018 Income & Spending

October 29, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Income Growth Was Sluggish in September but Consumers Persevered

*     U.S. Nominal Personal Income increased by just 0.2 percent in September.
*     After inflation and taxes, Real Disposable Income was up by 0.1 percent.
*     Real Consumer Spending increased by 0.3 percent in September.
*     The Personal Consumption Expenditure Price Index gained 0.1 percent in September.

The September income and spending data shows sluggish real income growth at the end of the third quarter. Nominal personal income was up by 0.2 percent in September. Wages and salaries are the biggest part of personal income and they were only up by 0.2 percent, the weakest monthly gain since October 2017. Weaker-than-expected job growth in September was a contributing factor. After adjusting for inflation and taxes, real disposable income was up by just 0.1 percent in September, the weakest gain there since last April. Undaunted, consumers increased their spending by more than their incomes increased. Real consumer spending was up by a moderate-to-strong 0.3 percent in September. With spending increasing by more than income, the personal saving rate went down. It was as high as 7.4 percent in February this year, but in September the saving rate fell to 6.2 percent. That is not a bad number and the trend is unclear at this time. However, if the saving rate continues to decline, that would mean that consumers are leaning more on their credit cards. Inflation was calm again in September. The Personal Consumption Expenditure (PCE) Price Index increased by just 0.1 percent for the fourth consecutive month. Over the previous 12 months, the PCE Price Index was up by 2.0 percent and the core PCE Price Index (less food and energy) was also up by 2.0 percent over the year. This aligns with the Federal Reserve’s near-2-percent inflation target. We look for moderate real consumer spending growth in the fourth quarter with overall GDP growth stepping down from a 3.5 percent annual rate in Q3 to something closer to 2.5 percent in Q4. We will be updating our U.S. Economic Outlook early next week.

Market Reaction: U.S. equity markets opened with gains. The yield on the 10-year Treasury bond is up to 3.10 percent. NYMEX crude is down to $66.97/barrel. Natural gas futures are down to $3.15/mmbtu.

For a PDF version of this report, click here: September 2018 Income & 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, October 26, 2018

October 26, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

The big news for the week was the ongoing correction in global equity markets. The S&P 500 has lost nearly 10 percent from October 3 through October 26.

Economic data at the end of October is a good news/bad news story. The good news is that many indicators remain at very positive levels. The bad news is that there are some weak spots in the U.S. economy that are getting more worrisome. 

This good news/bad news story is apparent in the first estimate of Q3 GDP. Real gross domestic product increased at a moderate-to-strong 3.5 percent annualized rate in the third quarter, following a stronger 4.2 percent quarter in Q2. Real consumer spending increased by more than we thought it would, growing at a 4.0 percent rate in Q3, slightly above the 3.8 percent growth rate from Q2. However, business fixed investment was weak in Q3, growing at a 0.8 percent annualized rate after two strong quarters in the first half of the year. Residential investment declined for the third consecutive quarter, falling at a -4.0 percent annualized rate, symptomatic of cooling real estate markets. Real inventories did an about face. After falling by $37 billion ($2012) in Q2, inventories rebounded by a very strong $76.3 billion in Q3, adding 2.1 percentage points to Q3 real GDP. Trade subtracted 1.8 percentage points from real GDP growth in Q3 as imports surged. Federal government spending increased at a 3.3 percent annualized rate in Q3 after 3.7 percent growth in Q2. State and local government spending was also unusually strong in Q3, increasing at a 3.2 percent annualized rate as total government spending added 0.6 percentage points to Q3 real GDP growth. The surge in total government spending in Q3 is not sustainable.

New orders for durable goods increased by 0.8 percent in September after a 4.6 percent gain in August. As usual, commercial and defense aircraft orders added volatility to the headline numbers. Core new orders (nondefense capital goods excluding aircraft) eased by 0.1 percent in September after a 0.2 percent loss in August. 

Initial claims for unemployment insurance increased by 5,000 for the week ending October 20, to hit 215,000. New claims appear to be edging up after hitting exceptionally low levels in September. Continuing claims for unemployment insurance dipped by 5,000 for the week ending October 13, to hit 1,636,000, still an exceptionally low number. 

New home sales fell by 5.5 percent in September, to a 553,000 unit annual rate. This is the weakest monthly rate since March 2016. Sales fell by 40.6 percent in the Northeast. New home sales fell in the South Region by just 1.5 percent despite Hurricane Florence. The Midwest saw a 6.9 percent increase while the West dropped by 12.0 percent. The months’ supply of new homes for sale jumped to 7.1 months’ worth. The median sales price of a new home in September was down by 3.5 percent over the previous 12 months. 

Mortgage applications increased by 4.9 percent for the week ending October 19. Purchase apps gained 2.0 percent after two consecutive weekly declines. Refi apps jumped by 9.7 percent after three consecutive weekly declines. On a four-week moving average basis, refi apps are down 34.5 percent over the last 12 months, while purchase apps are down 0.7 percent. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage climbed to 5.11 percent.

For a PDF version of this report, click here:  Comerica Economic Weekly, October 26, 2018

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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2018Q3 GDP, First Estimate

October 26, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

3.5 Percent Q3 Real GDP Growth Masks Major Gyrations in Components

*     Real Gross Domestic Product for 2018Q3 increased at a 3.5 percent annualized rate.

Real gross domestic product increased at a 3.5 percent annualized rate in the third quarter, according to the first estimate from the Bureau of Economic Analysis. This follows a stronger 4.2 percent quarter in Q2. Consumers did their part and then some. Real consumer spending increased by more than we thought it would, growing at a 4.0 percent rate in Q3, slightly above the 3.8 percent growth rate from Q2. High consumer confidence and strong labor market conditions are helping, despite slumping housing markets. Consumer spending on durable goods increased at a strong 6.9 percent annualized growth rate after registering 8.6 percent growth in Q2. Spending on nondurables accelerated from a 4.0 percent growth rate in Q2, to 5.2 percent in Q3. Consumer spending on services picked up from a 3.0 percent growth rate in Q2 to 3.2 percent in Q3. Business fixed investment was weak in Q3, growing at a 0.8 percent annualized rate after two strong quarters in the first half of the year. Spending on all three components of business fixed investment, structures, equipment and intellectual property, decelerated in the third quarter. Residential investment declined for the third consecutive quarter, falling at a -4.0 percent annualized rate, symptomatic of cooling real estate markets. Real inventories did an about face. After falling by $37 billion ($2012) in Q2, inventories rebounded by a very strong $76.3 billion in Q3, adding 2.1 percentage points to Q3 real GDP. Real exports declined at a 3.5 percent annualized rate in Q3, while imports surged at a 9.1 percent rate. Gyrations in trade this year are due to timing issues around the trade wars and due to the strong dollar. Trade subtracted 1.8 percentage points from real GDP growth in Q3. Federal government spending has picked up noticeably beginning in late 2017. It increased at a 3.3 percent annualized rate in Q3 after 3.7 percent growth in Q2. State and local government spending was also unusually strong in Q3, increasing at a 3.2 percent annualized rate. Total government spending added 0.6 percentage points to Q3 real GDP growth. We expect real GDP growth to moderate more in the current fourth quarter as consumer spending normalizes along with inventory accumulation and spending by state and local governments.

Market Reaction: U.S. equity markets opened with losses again. The 10-year Treasury bond yield is down to 3.07 percent. NYMEX crude oil is down to $66.66/barrel. Natural gas futures are down to $3.15/mmbtu.

For a PDF version of this report, click here: 2018Q3 GDP, First Estimate

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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September 2018 New and Existing Home Sales, Oct. Mortgage Apps

October 24, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Soggy September Is Not Enough to Explain Housing Slump

*     New Home Sales fell by 5.5 percent in September, to a 553,000 unit annual rate.
*     Existing Home Sales decreased by 3.4 percent in September, to a 5,150,000 unit annual rate.
*     Mortgage Applications increased by 4.9 percent for the week ending October 19.

The housing market continues to languish. Both new and existing home sales dropped again in September. Some of the drag was likely due to Hurricane Florence, but weak sales were reported outside of the South Census Regional. New home sales fell by 5.5 percent in September, to a 553,000 unit annual rate. This is the weakest monthly number since March 2016. Sales fell by 40.6 percent in the Northeast Census Region, which starts in Pennsylvania and New Jersey and continues northward through Maine. New home sales fell in the South Region by just 1.5 percent. The South Census Region starts in Maryland and Delaware and includes Florida and Texas. The Midwest saw a 6.9 percent increase in new home sales in September while the West dropped by 12.0 percent. The months’ supply of new homes for sale jumped to 7.1 months’ worth. It has been climbing since June. The median sales price of a new home in September notched up to $320,000 but was down by 3.5 percent over the previous 12 months. The sales price data does not account for difference in size and quality of houses.

Existing home sales fell by 3.4 percent in September to a 5,150,000 unit annual rate. This is the weakest monthly number for existing home sales since November 2015. The Northeast saw a 2.9 percent decline. The Midwest was unchanged for the month. The South lost 5.4 percent while the West was down by 3.6 percent. The months’ supply of existing houses for sale ticked up to a still-tight 4.4 months’ worth. The median sale price of an existing house was up by 4.2 percent in September over the previous 12 months.

If there is any good news in the recent housing data, it is that mortgage applications increased by 4.9 percent for the week ending October 19. Purchase apps gained 2.0 percent after two consecutive weekly declines. Refi apps jumped by 9.7 percent after three consecutive weekly declines. On a four-week moving average basis, refi apps are 34.5 percent over the last 12 months, while purchase apps are down 0.7 percent. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage climbed to 5.11 percent.

Availability of both new and existing homes is an issue, and the weather was an issue in both September and October, but affordability is also an issue. Higher existing house prices, higher land prices, higher materials prices, higher labor costs and higher mortgage rates are all working against entry-level buyers.

Market Reaction: U.S. equity markets opened with more losses. The 10-year Treasury bond yield is down to 3.12 percent. NYMEX crude oil is up to $66.99/barrel. Natural gas futures are down to $3.33/mmbtu.

For a PDF version of this report, click here: September 2018 New and Existing Home Sales, Oct. 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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September 2018 Housing Starts, Oct. NAHB, Mortgage Apps

October 17, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Multifamily Construction Is Losing Steam

*     Housing Starts fell by 5.3 percent in September to a 1,201,000 unit annual rate.
*     Housing Permits eased by 0.6 percent in September to a 1,241,000 unit annual rate.
*     Builder Confidence was little changed in October.
*     Mortgage Applications fell by 7.1 percent for the week ending October 12.

Housing starts fell noticeably in September, down 5.3 percent, to a 1,201,000 unit annual rate. Single-family starts were down by 0.9 percent to an 871,000 unit annual rate, in the middle of the range seen so far in 2018. Multifamily starts fell by 15.2 percent to a 330,000 unit annual rate, at the low end of the range seen so far this year. Both single-family and multifamily starts were down in the South Census region in September, possibly impacted by Hurricane Florence. Total permits were more stable, dipping by just 0.6 percent for the month, to a 1,241,000 unit rate. Permits for new single-family construction increased by 2.9 percent in September to an 851,000 unit rate. However, multifamily permits dropped by 7.6 percent to a 390,000 unit rate, the lowest monthly figure so far in 2018. Permits in the South were up modestly. The single-family segment of residential construction is going sideways at best this year. The multifamily component has clearly weakened since early this year. Higher mortgage rates, higher land prices, higher materials costs and higher labor costs are all squeezing the entry-level segment of the housing market. We do not expect to see relief in any of those factors soon. With residential construction cooling, the push to U.S. GDP from this important economic accelerator is noticeably absent. Hurricane Michael may keep construction activity in the South subdued again in October. We expect to see stronger construction activity in the South later this year and into next year as the rebuilding effort from this fall’s storms gets underway.

According to the National Association of Home Builders, their Builder Confidence Index increased by 1 point in October, to 68. The index remains below its recent peak of 74 from December 2017.

Total mortgage applications were down by 7.1 percent for the week ending October 12. Refi apps were off by 9.0 percent, their third consecutive weekly decline. Purchase apps dropped 5.9 percent, their second straight drop. On a four-week moving average basis refi apps were down 35.1 percent from the year-ago numbers, while purchase apps were nearly even, up by 0.3 percent. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage increased to 5.1 percent.

Market Reaction: Stock indexes opened with losses. The yield on 10-year Treasury bonds is down to 3.15 percent. NYMEX crude oil is down to $70.19/barrel. Natural gas futures are up to $3.40/mmbtu.

For a PDF version of this report, click here: September 2018 Housing Starts, Oct. NAHB, 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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September 2018 Retail Sales

October 15, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Shoppers Subdued in August and September

•    Retail Sales increased by just 0.1 percent in September after a similar weak gain in August.
•    Manufacturing and Trade Inventories increased by 0.5 percent in August.

Retail sales started off the third quarter with good momentum, increasing by 0.6 percent in July. However, August saw a weak 0.1 percent increase and now that has been followed by a similarly weak 0.1 percent increase in September. The larger increase early in the quarter will help to keep the quarterly average up, but overall consumer spending does not appear to be keeping pace with very high consumer confidence. That is both a good thing and a bad thing for the economy. Bad news first. Subdued consumer spending will likely keep the third quarter GDP numbers in check. Consumer spending accounts for about two-thirds of GDP, so as the consumer goes, so goes the U.S. economy. Our estimate for Q3 real GDP growth has crept down to a moderate 2.7 percent, following a strong 4.2 percent real GDP growth rate from Q2.

The good news in subdued consumer spending is that if consumers are not spending it, they are saving it. The personal saving rate has remained well above the dangerously low near-2-percent rate seen before the last recession. It is staying relatively elevated, near 6.5-7.0 percent. That will give consumers some protection from future economic turbulence. Three factors may be contributing to subdued consumer spending despite the strong labor market and high consumer confidence. (1) The aging population is changing our overall spending patterns. (2) House sales have shown no momentum recently and so they are not driving a lot of consumer spending normally associated with buying and selling houses. (3) Auto sales may be past their peak for this business cycle. Also, there may be some distortions in the retail sales data from September due to Hurricane Florence. Unit auto sales were up in September, to a strong 17.4 million unit pace. Nominal retail sales of autos and parts increased by 0.8 percent for the month. Other categories were mixed. Furniture sales were strong in September, gaining 1.1 percent. Building material sales inched up by 0.1 percent. Service station sales dipped by 0.8 percent with a slight drop in gasoline prices. Restaurant sales were down noticeably, by 1.8 percent and that may be hurricane related.

Manufacturing and trade inventories increased by 0.5 percent in August after a smaller 0.2 percent gain in July. We expect inventories to be a positive contributor to Q3 GDP growth after being an unexpected drag in Q2.

Market Reaction: Equity markets opened with losses after stabilizing late last week. The 10-year Treasury yield is down to 3.15 percent. NYMEX crude oil is down to $71.16/barrel. Natural gas futures are up to $3.36/mmbtu.

For a PDF version of this report, click here: September 2018 Retail Sales

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

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Comerica Economic Weekly, October 11, 2018

October 11, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Labor is tight, but prices are calm, contrary to what the Philips Curve describes. Trade tariffs are adding price pressure to specific products, but that is not showing up in the headline numbers. Price indexes remained calm in September indicating that inflation is well contained. 

The Producer Price Index for September showed a 0.2 percent monthly gain. Food and energy prices in the final demand index both dropped. Final demand goods less food and energy increased by 0.2 percent. Over the 12 months ending in September, the Producer Price Index for Final Demand was up by 2.6 percent, well below its peak y/y gain of 3.4 percent from last June. 

The Consumer Price Index for September gained just 0.1 percent. Consumer food prices were unchanged. Energy prices fell by 0.5 percent. We expect to see hotter energy prices in October reflecting tighter crude oil markets. Outside of food and energy, core prices also gained just 0.1 percent for the month. Over the previous 12 months the headline CPI is up by 2.3 percent, clearly past its peak y/y change of 2.9 percent from last June and July. Core CPI was up 2.2 percent in September over the previous 12 months. 

Initial claims for unemployment insurance increased by 7,000 for the week ending October 6 to hit a still-very-low 214,000. Continuing claims gained 4,000, reaching 1,660,000 for the week ending September 29, also a very low number consistent with a very tight labor market. 

Small business optimism remained strong in September. The National Federation of Independent Business’s Small Business Optimism Index eased slightly for the month, but stayed elevated near its 45 year high. Small businesses think that business conditions are good and this is a good time to expand. Sales and earnings expectations are strong. Planned price increases this summer are not outside of historical norms. Job openings are high but businesses are struggling to fill open positions. 

Total mortgage applications fell by 1.7 percent for the week ending October 5. Purchase apps were down by 1.1 percent for the week, breaking a string of five consecutive weekly gains. Refi apps fell by 2.6 percent after a small 0.1 percent loss the previous week. On a four-week moving average basis, purchase apps are up 3.4 percent from this time last year and refi apps are down by 34.8 percent. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage increased to 5.05 percent. 

The Federal Reserve remains on track to keep the fed funds rate unchanged at the upcoming FOMC meeting over November 7/8. We expect to see a 25 basis point increase in the fed funds rate announced at the conclusion of the last FOMC meeting of this year over December 18/19. A December rate hike would be the fourth 25 basis point rate hike in 2018. 

We look for three more 25 basis point rate hikes in 2019. We believe that the fed will maintain their cadence of a 25 basis point interest rate hike every other FOMC meeting through mid-year 2019. They will leave the fed funds rate unchanged over January 29/30. The next rate hike looks set for March 20. With that cadence they will leave the fed funds rate range unchanged over April 30/May 1 and raise it by 25 basis points again over June 18/19.

For a PDF version of this report, click here:  Comerica Economic Weekly, October 11, 2018

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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September 2018 Consumer Price Index, October UI Claims

October 11, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Consumer Prices Tame

*     The Consumer Price Index for September increased by 0.1 percent.
*     Initial Claims for Unemployment Insurance gained 7,000, to hit 214,000 for the week ending October 6.

Labor is tight, but prices are calm, contrary to what the Philips Curve describes. Trade tariffs are adding price pressure to specific products, but that is not showing up in the headline numbers. Price indexes remained calm in September indicating that inflation is well contained. Yesterday the Producer Price Index for September showed a 0.2 percent monthly gain. Today, we see that consumer inflation was sedate in September as the Consumer Price Index gained just 0.1 percent for the month. Consumer food prices were unchanged. Energy prices fell by 0.5 percent. We expect to see hotter energy prices in October reflecting tighter crude oil markets. Outside of food and energy, core prices also gained just 0.1 percent for the month. Over the previous 12 months the headline CPI is up by 2.3 percent, clearly past its peak year-over-year change of 2.9 percent from last June and July. Core CPI was up 2.2 percent in September over the previous 12 months.

Initial claims for unemployment insurance increased by 7,000 for the week ending October 6 to hit a still-very-low 214,000. Continuing claims gained 4,000, reaching 1,660,000 for the week ending September 29, also a very low number consistent with a very tight labor market.

Market Reaction: U.S. equity markets opened with losses following the sell-off yesterday. The 10-Year Treasury bond yield is up to 3.17 percent. NYMEX crude oil is down to $72.13/barrel. Natural gas futures are down to $3.21/mmbtu.

For a PDF version of this report, click here: September 2018 Consumer Price Index, October 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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October 2018 U.S. Economic Outlook

October 10, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. Households Are in Very Good Shape     

The U.S. economic expansion reached 112 months in October and it is in no immediate danger of ending. We expect this expansion to go into the record books as the longest U.S. economic expansion ever when it reaches 121 months next July. While the near-term outlook is good, we will be in unknown territory if and when this becomes the longest expansion in U.S. history.

The number of economic metrics that are at multidecade bests (highs or lows) is remarkable. Many of these “bests” are labor market metrics. The U.S. unemployment rate, at 3.7 percent in September, is the lowest since December 1969. Likewise, unemployment insurance claims are the lowest since 1969. July job openings were at 6,939,000, the highest level since that series started in December 2000. The National Federation of Independent Business’s Business Optimism Index was at a 45-year high in September.

Other metrics are very good. The ISM Manufacturing and the ISM Non-Manufacturing Indexes combining in September to exceed 120 is a very positive signal.

Payroll job growth in September eased off the near-200,000 jobs per month pace of the first eight months of 2018, to hit 134,000 for the month. This is not a bad number at all given how tight the labor market is. We have gotten used to robust job growth but that is going to change. We simply cannot keep that pace up given that we have only about 6 million unemployed workers according to the U3 labor force count. Wage growth continues to be moderate, up 2.8 percent over the last year.

Hurricane Florence may have been a small negative weight on the September job numbers. The timing of the hurricane suggests that most of the jobs data was collected before the hurricane struck the Carolina coast. Hurricane Michael may prove to be a bigger drag on October economic data than Florence was on September data.

U.S. households are in great shape. Jobs are plentiful. The personal saving rate has rebounded after bottoming out in June 2005 at 2.2 percent, to a fairly steady near-7 percent range. Homeowners are continuing to generate equity in their homes, and for the most part, they are not spending it out. So even if we hit some bumps, households are not overextended on credit and they have much more padding to protect themselves from adverse economic conditions than they did in late 2007.

The Conference Board’s Consumer Confidence Index in September surged to 138.4, within striking distance of its all-time high of 144.7 from January 2000. With the mid-term elections coming up consumer confidence may be vulnerable, especially if a flip in the House or Representatives and/or Senate significantly alters the political landscape. However, history suggests that consumer confidence tends to increase after the mid-term election. In 2014, the Consumer Confidence Index was higher in December after the mid-term election than it was in October before the mid-term election. The same was true in 2010, 2006, 2002, 1998 and 1994. 1990 breaks the pattern, but it holds in 1986 and 1982.

Federal Reserve Chairman Jay Powell has doubled down on “gradualism.” We still believe that gradualism, as defined by a 25 basis point fed funds rate hike every other FOMC meeting, will change in late 2019. But for now, the Fed’s familiar cadence will continue. According to the CME Group, the implied odds of the fourth rate hike for 2018, coming on December 19, are about 81 percent. The odds of the next rate hike after that coming in cadence on March 20, 2019 have increased to about 56 percent.

For a PDF version of this report, please click here: October 2018 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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The ADP Employment Report for September showed another strong monthly

October 3, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

More Strong Data Sets Up Superlative Shortage

*     The ADP Employment Report for September showed an increase of 230,000 private sector jobs.
*     The ISM Non-Manufacturing Index for September increased to a very strong 61.6.
*     Total Mortgage Applications were unchanged for the week ending September 28.

The ADP Employment Report for September showed another strong monthly job gain consistent with solid Q3 GDP growth. According to ADP, 230,000 private-sector jobs were added for the month. This lifts expectations for the official Bureau of Labor Statistics jobs report for September that will be released Friday morning. The sizeable gains in the ADP data were distributed across all sizes and types of businesses. According to ADP, 56,000 net new jobs were added by small business (less than 50 employees). Medium-sized business (50-499) added 99,000 jobs on net, while large businesses added 75,000. Natural resources/mining increased payrolls by 5,000. Construction added a hefty 34,000. Manufacturing added 7,000. Trade/transportation/utilities gained 30,000 jobs. Information services gave up 3,000. Financial activities added 16,000. Professional/business services added a strong 70,000 jobs in September. Education/health services was up by 44,000 jobs. Leisure/hospitality added 16,000. The ADP report does not have to align with the official BLS numbers, but it is a good first approximation. The BLS data is collected during the week of the month that contains the 12th. This September 12 was a Wednesday and Hurricane Florence hit North Carolina the following Friday. We expect that most businesses in the Carolinas were able to report their employment data as usual, so there will be relatively little impact from the storm on the September jobs numbers.

The ISM Non-Manufacturing Index increased from a strong 58.5 in August, to a very strong 61.6 in September. We are running out of words to describe the numbers. Robust is a good alternative. All ten sub-indexes are above the break-even level of 50, including production, new orders, employment, which all increased in September. Seventeen industries reported growth in September. No industries reported contraction. Anecdotal comments were positive but included concerns about tariffs. Labor and trucking shortages were also reported. As previously reported, the ISM Manufacturing Index for September was just a couple ticks shy of 60 at 59.8 for the month. The combined reading of over 120 for both the ISM Manufacturing and Non-Manufacturing Indexes is a very positive broad indicator of current economic conditions.
The Mortgage Bankers Association’s composite mortgage application index was unchanged for the week ending September 28. Purchase apps were up by 0.1 percent for the week, while refi apps were down by 0.1 percent. Purchase apps are on a positive roll, increasing in each of the last five weeks (not seasonally adjusted). On a four-week moving average basis, purchase apps are up 0.8 percent from a year ago, while refi apps are down 38.4 percent. According to the MBA, the rate for a 30-year fixed-rate mortgage ticked down one basis point to 4.96 percent.

Market Reaction: U.S. equity markets opened with gains. The yield on 10-Year T-bonds is up to 3.10 percent. NYMEX crude oil is down to $74.95/barrel. Natural gas futures are up to $3.22/mmbtu.


For a PDF version of this report, click here: September 2018 ADP Jobs, ISM Non-MF Index, 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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September 2018 ISM MF Index, August Construction Spending

October 1, 2018 by September 2018 ISM MF Index, August Construction Spending

Manufacturing Conditions Still Hot, Construction Still Lukewarm

*     The ISM Manufacturing Index for September eased to a still-strong 59.8 percent.
*     Construction Spending in August inched up by just 0.1 percent.

The ISM Manufacturing Index for September eased from a very strong 61.3 in August, to a still-strong reading of 59.8 in September, indicating very good conditions for U.S. manufacturers. Nine out of ten sub-indexes were in expansion territory, including new orders, production, employment and new export orders. Both new orders and employment increased from last month. Only the customers’ inventories sub-index was below the break-even 50 mark. Of the 18 reporting industries, 15 said that they were growing in September. Only primary metals reported contraction in September. Anecdotal comments show a high level of concern about trade tariffs. The just-announced U.S.-Mexico-Canada Trade Agreement will help to reduce some of the uncertainty, but it remains to be ratified by all three countries. Also, the new agreement does not address a key source of trade uncertainty…U.S.-China relations. In addition to impacting pricing, trade tariffs are leading to fluctuations in import and export volumes and in inventories for many companies. 

Total construction spending for August inched up by 0.1 percent following a 0.2 percent gain in July. Over the previous 12 months, construction spending was up by 6.5 percent, on the low side of average for an expansion cycle. Private residential spending fell by 0.7 percent in August. Private nonresidential dipped by 0.2 percent. Total public construction spending gained 2.0 percent for the month and was up by 14 percent.

Market Reaction: U.S. equity markets opened with gains. The yield on 10-Year Treasury bonds is up to 3.08 percent. NYMEX crude oil is up to $73.08/barrel. Natural gas futures are down to $3.08/mmbtu.

For a PDF version of this report, click here: September 2018 ISM MF Index, August 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, September 28, 2018

September 28, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

 Some estimates for Q3 real GDP growth had been flying high after the 4.2 percent growth rate was reported for Q2. An inventory rebound in Q3 could still push GDP growth above the strong Q2 rate. However, data from this week suggests that Q3 growth is more likely to step down, closer to 3 percent. We published a 3.1 percent real GDP growth rate for Q3 in our September U.S. Economic Outlook.

The culprit is trade. The advance trade data for August shows that the merchandise trade deficit (excluding services) widened by $3.8 billion. It now looks like trade will subtract about a full percentage point from real GDP growth in Q3.

There is still upside risk from inventories. Nominal wholesale inventories were up by 0.8 percent in August, while retail inventories gained 0.7 percent.

Nominal personal income was up by 0.3 percent in August, netting a 0.2 percent gain for real disposable income. Real consumer spending increased by 0.2 percent in August after a 0.3 percent gain in July. It looks like growth in consumer spending for Q3 will ease from the strong 3.8 percent rate from Q2. The Personal Consumption Expenditure (PCE) Price Index for August was sedate, increasing by 0.1 percent for the month while the core PCE prices were even cooler, unchanged for the month.

New orders for durable goods rebounded in August, up 4.5 percent after falling by 1.2 percent in July. Both defense and commercial aircraft orders generated the volatility. Core durable goods orders, nondefense capital goods excluding aircraft, eased by 0.5 percent.

Initial claims for unemployment insurance bumped up by 12,000 for the week ending September 22, to hit a still-very-low 214,000.  Both North Carolina and South Carolina showed a strong increase in initial claims, likely as a result of Hurricane Florence. Continuing claims increased by 16,000 for the week ending September 15, to hit 1,661,000.

The 12-month increase in the Case-Shiller U.S. National House Price Index slowed to 6.0 percent in July. The 20-city data showed some cities slipping in July. Dallas house prices lost 0.1 percent for the month.

New homes sales improved in August, up 3.5 percent to a 629,000 unit annual rate. The trend still looks soft. The inventory of new homes for sales eased to a moderate 6.1 months’ worth. The median sales prices of a new home fell to $320,200. This does not account for size and quality changes.

Consumers felt good in September. The Conference Board’s Consumer Confidence Index showed a noticeable 3.7 point increase to 138.4 in September, on the heels of a large increase in August. This metric is hovering near an 18-year high.

The Federal Reserve raised the fed funds rate range to 2.00-2.25 percent as expected. They also kept the Interest Rate on Excess Reserve slightly below the fed funds rate, raising it to 2.20 percent. In October the Fed will ramp up the amount of maturing bonds that it will allow to roll off its balance sheet, to a maximum rate of $50 billion per month. The Fed has not disclosed its final target for bond holdings.

Less reinvestment by the Fed, the end of net asset purchases by the European Central Bank by the end of this year, and then ECB rate increases after mid-year 2019 will all put upward pressure on global bond yields.

 

For a PDF version of this report, click here:  Comerica Economic Weekly, September 28, 2018

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 Little Changed

September 27, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s Texas Economic Activity Index decreased 0.1 points in July to 135.9. July’s index reading is 40 points, or 42 percent, above the index cyclical low of 95.5. The index averaged 128.5 points for all of 2017, 3.9 points above the average for 2016. June’s index reading was revised to 136.0.

The Comerica Bank Texas Economic Activity Index eased by just 0.1 percent in July, essentially unchanged from June. This breaks a three-month winning streak. We expect the Texas Index to return to growth very soon. Over the 12 months ending in July, the Texas Index is up 5.8 percent, consistent with strong real GDP growth for the state during this time span. In July, five out of nine index components were positive. They were nonfarm payrolls, unemployment insurance claims (inverted), housing starts, industrial electricity demand and total state trade. House prices, drilling rig count, hotel occupancy and sales tax revenues were negatives in July. Firmer oil prices in late 2018 and a strong U.S. economy will support an ongoing robust expansion for Texas. Also, the recently completed U.S. trade deal with Mexico removes some uncertainty for Texas businesses. The trade deal remains to be ratified by both countries and may eventually include Canada. Job growth for Texas ticked up this year. Through August, the state has averaged 34,000 net new jobs per month this year, well above the average of 21,000 net new jobs per month for all of 2017. For the first eight months of 2018, the entire U.S. has averaged 208,000 net new jobs per month, so roughly 1 out of every 6 new jobs in the U.S. this year was generated in Texas.

For a PDF version of this article, please click here: Comerica Bank's Texas Index Little Changed

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

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Comerica Bank's Michigan Index Slips Again

September 27, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s Michigan Economic Activity Index fell again in July to a level of 118.4. July’s reading is 21 points, or 21 percent, above the index cyclical low of 97.9. The index averaged 118.2 points for all of 2017, one point above the index average for 2016. June’s index reading was 118.8.

Comerica Bank’s Michigan Economic Activity Index slipped again in July, after falling in June. The July 2018 index value of 118.4 matches the value from April 2017, and is just 0.5 percent greater than July 2017, showing little forward momentum in the Michigan economy over the last year. With the state’s auto industry either at or post peak, and trade disruptions adding to economic uncertainty, the Michigan economy is cooling, but not contracting. Only two out of nine industry components were positive in July. They were non-farm employment and industrial electricity demand. Seven components lost ground in July, including unemployment insurance claims (inverted), housing starts, house prices, vehicle production, total state trade, hotel occupancy and state sales tax revenues. Uncertainty about international trade is an ongoing negative factor for many Michigan businesses. The Trump Administration has set a late September deadline for its trade negotiations with Canada, which would bring Canada into the already-complete U.S.-Mexico trade framework. It is unlikely that the deadline will be met. The Trump Administration is expected to request approval from Congress for a Mexico-only deal and at the same time continue negotiations with Canada. The U.S. Commerce Department must determine whether auto imports threaten national security before the Trump Administration can unilaterally impose taxes on Canadian auto products.

For a PDF version of this article, please click here: Comerica Bank's Michigan Index Slips Again

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

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Comerica Bank's Florida Index Improves

September 27, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Comerica Bank’s Florida Economic Activity Index increased 0.2 points in July to a level of 114.8. July’s index reading is 16 points, or 17 percent, above the index cyclical low of 98.5. The index averaged 113.1 in 2017, 1.4 points above the average for all of 2016. June’s index reading was 114.6.

The Comerica Bank Florida Economic Activity Index ticked up again in July after seeing similar gains in June. In July, six index components were positive. They were nonfarm payrolls, unemployment insurance claims (inverted), housing starts, house prices, industrial electricity demand, and sales tax revenue. Hotel occupancy and enplanements were negatives in July. Total state trade was unchanged for the month. The Florida economy continues to gain momentum following an early 2018 stall. Job growth accelerated from June to August, with the state’s real estate, manufacturing and accommodations industries all improving through late summer. Uncertainty surrounding foreign demand and global trade are risk factors that will remain through the end of 2018. Emerging markets, particularly in Latin America, are seeing increased economic volatility this year. Trade negotiations between the U.S. and Canada are still unresolved despite deadlines pushed by the Trump Administration. Also, trade tensions continue to rise with China as new tariffs were put into effect on September 24. Buffering the international risks to the Florida economy are the tailwinds from a strong U.S. economy. U.S. business and consumer confidence measures are at cyclical highs, if not, all-time highs. This will support ongoing domestic travel into Florida as well as corporate and household relocations.

For a PDF version of this article, please click here: Comerica Bank's Florida Index Improves

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

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