November Consumer Price Index, Producer Price Index, Mortgage Apps

December 12, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Falling Energy Prices Keep Headline Inflation in Check

*     The Consumer Price Index for November was unchanged from October.
*     The Producer Price index for Final Demand increased by 0.1 percent in November.
*     Mortgage Applications increased by 1.6 percent for the week ending December 7.

The headline Consumer Price Index for November was unchanged as lower energy prices counteracted moderate consumer price inflation elsewhere. Over the previous 12 months, headline CPI was up by 2.2 percent, well below the 2.9 percent year-over-year gain from mid-summer. The energy price sub-index was down by 2.2 percent in November as gasoline and other petroleum product prices fell. Food prices were up a moderate 0.2 percent. Excluding food and energy, Core CPI increased by 0.2 percent for the month, and was up by 2.2 percent over the previous 12 months.

The Producer Price Index for Final Demand increased by just 0.1 percent in November. Over the previous 12 months headline PPI was up by 2.5 percent, well below its 3.4 percent year-over-year gain from last July. Energy was a key drag here as well. The energy sub-index for the PPI fell by 5.0 percent for the month. Outside of energy, price gains were mixed. Food was up by 1.3 percent in November following a 1.0 percent gain in October. The core PPI (final demand less food, energy and trade) was still up by 2.8 percent over the previous 12 months.

So, we can say that inflation metrics in the second half of 2018 have been heavily influenced by the oil price rollercoaster. Outside of energy there is some upstream price pressure that appears to be disconnected from consumer prices. This implies that profit margins are under some pressure. Additional pressure is coming from the U.S.-China trade war which is disrupting global supply chains.

We expect the Federal Reserve to announce the fourth 25 basis point fed funds rate hike for 2018 next Wednesday afternoon, despite the tepid headline inflation numbers for November.

Total mortgage applications were up by 1.6 percent for the week ending December 7 as both purchase and refi apps increased. Purchase apps were up by 2.5 percent, their fourth consecutive weekly gain. Refi apps increased by 1.8 percent for the week, after increasing in the previous two weeks. On a four-week moving average basis, refi apps are down 36.2 percent from ago while purchase apps are down by just 0.2 percent. According to the National Association of Realtors, October existing home sales were down by 5.1 percent over the previous 12 months, worse than the mortgage apps numbers would imply. Lower yields on long duration Treasury bonds have helped mortgage rates. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage fell for the third consecutive week, to 4.96 percent.

Market Reaction: U.S. equity markets opened with gains. The 10-Year Treasury bond yield is up to 2.90 percent. NYMEX crude oil is down to $52.58/barrel. Natural gas futures are down to $3.88/mmbtu.

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

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

U.S. Conditions are Good, but a Canary has Coughed

The majority of U.S. economic metrics look positive early in the fourth quarter. Many metrics are at multi-decade bests. The unemployment rate stayed at 3.7 percent for the third consecutive month in November, the lowest it has been since December 1969, when it dipped to 3.5 percent. It didn't stay there for long. The next recession started in January 1970. By the end of 1970, the unemployment rate had increased to 6.1 percent.

A quick look at the history of the U.S. unemployment rate since January 1948 reveals a simple consistent pattern. Since 1948, the unemployment rate has always been cyclical. Lows are followed by highs and highs are followed by lows. The U.S. unemployment rate has never taken a random walk. The average gain from valley to peak in the unemployment rate is 3.7 percentage points over the last 10 cycles. The largest gain since World War II came during the Great Recession when the unemployment rate increased by 5.6 percentage points over the course of 31 months from 4.4 percent in March 2007, to 10.0 percent in October 2009. The smallest cyclical gains were 2.5 percentage points.

The unemployment rate is considered to be a lagging economic indicator, telling us where we have been, not where we are now. But a related metric is considered to be a leading indicator. Initial claims for unemployment insurance are a key component of change for the unemployment rate. Gains and losses in the weekly initial claims data are well correlated with gains and losses in the unemployment rate. Initial claims dipped to a low of 204,000 for the week ending September 8, 2018 when the unemployment rate first hit 3.7 percent. Since then the trend in initial claims has been up. It is too early to say if the uptrend will be sustained. It may be an artifact of this year’s hurricane season. However, initial claims are like the canary in the coal mine, often signaling when conditions are changing, and the canary has coughed, so we should keep an eye on it.

GM added some dust when it announced 5 plant closures for 2019, totaling about 15,000 jobs in the U.S. and Canada. Verizon has just announced that it will eliminate 10,400 jobs in 2019.

The Federal Reserve’s last policy meeting of 2018 will be an important one. Over December 18 and 19 the Federal Open Market Committee will debate the merits of another fed funds rate hike. We expect that the FOMC will approve the fourth 25 basis point fed funds rate hike for the year. The implied probability of that outcome has eased to about 76 percent. Normally, when there is a broad expectation of a rate hike this close to an FOMC meeting, the probabilities implied by the interest rate futures market would be somewhat higher. However, ongoing volatility in financial markets generally is keeping the rate hike short of a sure thing. In addition to the policy announcement, we will also see a new “dot plot” from the Fed on December 19, plus a new set of economic projections and a post-meeting press conference by Fed Chair Jay Powell.

We expect 2019 to be a pivotal year for the U.S. economy. Some metrics may start to show the early signs of deterioration. Others will point more clearly to cooling conditions. Amongst those, housing data is especially worrisome. New and existing home sales have been on downtrends since both series peaked in November 2017. The Fed’s rate hike next week will put additional upward pressure on mortgage rates, eating into housing affordability. The FHFA’s effective mortgage rate has increased about 130 basis points from its low of 3.49 percent in December 2012, to 4.82 percent in October 2018. Over that time span, housing affordability has dropped by 23 percent according to Moody’s Analytics Housing Affordability Index.

For a PDF version of this report, click here: December 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, December 7, 2018

December 7, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

The economic data released this week is consistent with a moderate economic expansion in Q4. Most of the economic chatter surrounded trade, OPEC and the U.S. jobs report.

U.S. payrolls expanded by 155,000 net new jobs in November. The unemployment rate stayed at 3.7 percent. Wage pressure remained moderate. Average hourly earnings were up 0.2 percent for the month and 3.1 percent over the previous 12 months. The labor force participation rate was unchanged at 62.9 percent.

The U.S. international trade gap widened in October to -$55.5 billion. Imports rose by $0.6 billion while exports declined by $0.3 billion. The big news in international trade came during the G-20 summit last weekend. The leaders of the U.S., Mexico and Canada signed the new North America trade accord known as USMCA. Each country’s legislative body must still ratify the agreement into law. Also, it was announced that the U.S. and China have committed to a 90 day truce on imposing new tariffs to allow for more time to conduct negotiations.

The ISM Manufacturing Index unexpectedly climbed in November up to 59.3 after dipping in October to 57.7. A reading near 60 is a very positive indicator for manufacturing. The ISM Non-Manufacturing Index also improved for the month, up to 60.7. 

Total construction spending was little changed in October, down by just 0.1 percent for the month. Private residential construction spending dipped by 0.5 percent as new single-family construction faded. The U.S. housing market has cooled in 2018. The months’ supply of new single-family housing available for sale has grown every month since May. This will limit residential construction activity in the near-term. Private non-residential construction was down 0.3 percent for the month. 

Mortgage applications improved in the last two weeks of November after declining for the first half of the month. The composite index was up 2 percent for the week ending November 30 as refi apps grew by 6.2 percent. Purchase apps were up by 0.8 percent.

Initial claims for unemployment insurance eased by 4,000 for the week ending December 1, to hit 231,000. Initial claims have trended a little higher since September yet remain at a very low level indicating ongoing strength in the U.S. labor market. Continuing claims fell by 74,000 to hit 1,631,000 for the week ending November 24.

Auto sales went unchanged at a 17.5 million unit rate in November, stronger than we expected. Solid job growth, wage gains and consistent high consumer confidence are all supporting auto sales. Increasing finance costs and a cooling housing market are negatives for the industry.

OPEC agreed to a 1.2 million barrel per day production cut today. The announcement should bolster oil prices. WTI crude prices dipped from the mid-$70 range in October down to the low $50s in early December. It remains to be seen how compliant member countries will be with the agreement, including Iran which says that it is exempt from cuts.

The Federal Reserve remains on track to implement its fourth 25 basis point rate hike for 2018 at the conclusion of the FOMC meeting over December 18/19. We will receive a plethora of information from the Fed on the 19th, including a dot plot, economic forecasts and a post-meeting conference by FOMC Chairman Jay Powell.

For a PDF version of this report, click here:  Comerica Economic Weekly, December 7, 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 U.S. Employment

December 7, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Jobs Report Was Solid, Payroll Growth a Little Below Expectations

*     Payroll Employment increased by 155,000 jobs in November. October was revised down to +237,000.
*     The Unemployment Rate for November was unchanged at 3.7 percent.
*     Average Hourly Earnings increased by 0.2 percent in November and were up 3.1 percent over the year.
*     The Average Workweek in November decreased to 34.4 hours.

U.S. payrolls expanded by a weaker-than-expected 155,000 net new jobs in November. The U.S. only needs to add between 110,000 to 130,000 net new jobs per month to absorb new entrants into the labor force. So November’s payroll numbers were a solid gain for the U.S. labor market. The October payrolls number was revised down to +237,000 jobs. The household survey of employed showed a strong gain of 200,000 jobs while the labor force grew by a slightly weaker +133,000. The U.S. unemployment rate was unchanged in November at 3.7 percent. Wage pressure remained 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 was unchanged at 62.9 percent in November.

The establishment survey indicated that jobs gains were broad-based but there were some net declines in sectors. Mining and logging declined by 3,000 jobs in November with lower oil prices. Construction employment grew by 5,000. Manufacturing saw a strong net gain of 27,000 jobs for the month, however auto-related manufacturing lost 800 jobs. GM’s announcement of as many as 15,000 jobs to be cut in the U.S. and Canada will not factor into the payroll numbers until 2019. Wholesale trade added 9,500 net new jobs. Retail was up a solid 18,200 jobs, just in time for the holidays. Utilities were flat, adding just 200 jobs. Information services dipped by 8,000 jobs. Financial services gained 6,000. Professional and business services continued its positive trend, up 32,000 net new jobs. Education and healthcare employment increased by 34,000 jobs. Leisure and hospitality improved by 15,000 jobs. The government sector declined for the second consecutive month, losing 6,000 in November.

Job growth in the U.S. has been strong in 2018. Including revisions, the U.S. has added an average 206,000 jobs per month so far in 2018, well above the 182,000 jobs per month added in 2017. Wages gains have been moderate yet are improving and are now ahead of inflation. Core measures of consumer inflation remain around the Federal Reserve’s 2 percent target. This will keep the Federal Reserve on track to raise the fed funds rate by 25 basis points at the conclusion of the December 18/19 FOMC meeting.

Market Reaction: U.S. equity markets were down after the open. The 10-Year T-bond yield is up to 2.89 percent. NYMEX crude oil is up to $53.67/barrel. Natural gas futures are up to $4.53/mmbtu.

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

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

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November 2018 ISM MF Index, Oct. Construction Spending

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

U.S. Manufacturing Conditions Improved in November

*     The ISM Manufacturing Index for November improved to a strong 59.3 percent.
*     Construction Spending in October was little changed, down by 0.1 percent.

The ISM Manufacturing Index increased from 57.7 in October to 59.3 in November. A reading above 50 is a positive indicator for manufacturing, while a reading near 60 shows very good conditions. Nine out of ten sub-indexes were positive for the month, including new orders, production and employment. The only sub-index below the break-even 50 mark was customers inventories, which still look slim at 41.5. Thirteen out of eighteen industries reported expansion in November, including computers and electronics, plastics and rubber, textiles and electrical equipment. The three industries reporting contraction were printing, nonmetallic minerals and primary metals. Anecdotal comments remain focused on the drag from trade tariffs and from labor shortages.

Total construction spending for the month of October was little changed, down by just 0.1 percent for the month. Private residential construction spending dipped by 0.5 percent as new single-family construction faded. Over the year ending in October, private residential construction spending increased by a modest 1.8 percent. Private nonresidential construction eased by 0.3 percent for the month but was up by 6.4 percent over the year. Construction spending on lodging facilities was up almost 18 percent over the year and office construction was up by 16 percent. Those gains were countered by a 9.6 percent decline in spending on religious projects and a 5 percent decline in spending on communication projects over the 12 months period. Total public construction spending was up by 0.8 percent for the month and was up by 8.5 percent over the previous 12 months.

Market Reaction: U.S. equity markets open with gains from trade discussions and firmer oil prices. The yield on 10-Year Treasury bonds is up to 3.00 percent. NYMEX crude oil is up to $52.52/barrel. Natural gas futures are down to $4.37/mmbtu.

For a PDF version of this report, click here: November 2018 ISM MF Index, Oct. 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, November 30, 2018

November 30, 2018 by Robert A. Dye, Ph. D., Daniel Sanabria

The economic discussion this week focused on the Fed and on trade.

Several members of the Federal Open Market Committee delivered speeches or made statements this week, including FOMC Chair Jay Powell. Also, the minutes for the FOMC meeting of November 7/8 were released.Three important conclusions can be drawn from a week of Fedspeak. First, the Fed is comfortable with “gradualism” in the near term. Gradualism has come to mean a 25 basis point increase in the fed funds rate every other FOMC meeting. We expect to see the fourth such rate hike this year at the conclusion of the December 18/19 FOMC meeting. This will put the fed funds rate range at 2.25-2.50 percent on December 19. The implied probability of a December 19 rate hike has increased to about 83 percent.

The second important conclusion is that the Fed thinks that the fed funds rate range is getting closer to “neutral.” At “neutral,” it will be neither stimulative for the overall economy, nor restrictive. Of course, no one knows exactly where the neutral rate is. It can only be guessed at with a combination of objective and subjective reasoning. Also, one person’s “neutral” may be another person’s “restrictive.”

Third, the Fed is getting closer to changing the cadence of rate hikes. We expect the Fed to break the recent cadence of one 25 basis point rate hike every other FOMC meeting sometime in 2019. If conditions in key sectors, like housing, deteriorate, the Fed will break their cadence sooner and pause their tightening strategy. If inflation picks up, the Fed may break the cadence later. Bear in mind that beginning in January, Jay Powell will give a press conference at the conclusion of all eight FOMC meetings in 2019, not just at the current four. This will make all eight meetings “live,” with possibilities of a change in fed policy.

The U.S., Mexico and Canada have all signed their new trade agreement. It still must be approved by the legislative bodies of all three countries after a period of public comment and legislative debate.

Also, the Trump Administration has hinted that some movement is possible on the apparently deadlocked trade discussion with China. The G-20 meeting in Buenos Aires that is currently underway offers the opportunity for high-level discussion if that is what leaders want.

U.S. economic data this week was mixed. Housing-related data shows that many regional housing markets are clearly cooling. Housing affordability is taking a hit as mortgage rates increase and labor and materials costs increase for new construction. New home sales fell hard  by 8.9 percent in October, down to a 544,000 unit annual rate, the weakest annualized rate since March 2016.

According to the Case-Shiller U.S. National Home Price Index, house prices were up in September by 5.5 percent over the previous 12 months. That was the smallest year-over-year gain since December 2016. Among the cities in the Case-Shiller 20-City Composite Home Price Index, only Las Vegas is showing double digit year-over-year gains, up 13.5 percent in September. Previously hot West Coast markets are coming down to earth.

General Motors announced the closures of 5 plants in the U.S. and Canada in 2019, impacting as many as 15,000 workers.



For a PDF version of this report, click here: Comerica Economic Weekly, November 30, 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 Income & Spending, Nov. UI Claims

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

Spending Outpaced Income, Claims Crept Up

*     U.S. Nominal Personal Income increased by 0.5 percent in October.
*     After inflation and taxes, Real Disposable Income was up by 0.3 percent.
*     Real Consumer Spending increased by 0.4 percent in October.
*     The Personal Consumption Expenditure Price Index gained 0.2 percent in October.

Payroll expansion and wage hikes are supporting personal income, but in October it was small businesses that mattered. Nominal personal income increased by a solid 0.5 percent in October, with a moderate 0.3 percent gain in wages and salaries, and a strong 1.6 percent increase in proprietors’ income. Inflation was moderate. The Personal Consumption Expenditure (PCE) Price Index is closely watched by the Federal Reserve. It increased by a moderate 0.2 percent in October, pushed by a strong 2.4 percent gain in energy prices. We will see a big drag from energy prices in the November data, consistent with the fall in WTI crude oil down to near $50 per barrel. Excluding food and energy, the Core PCE Price Index was up by a sedate 0.1 percent in November, showing little core inflation for the month. Over the previous 12 months, the headline PCE Price Index was up by an even 2.0 percent, hitting the Fed’s symmetrical target. Core PCE prices were up 1.8 percent in October, over the previous 12 months. Nominal personal taxes paid increased by a moderate 0.2 percent in October. After adjusting for inflation and taxes, real disposable income was up by a moderate 0.3 percent for the month. Real consumer spending gained 0.4 percent in October, following a sluggish 0.1 percent gain in September. It looks like the holiday shopping season is off to a good start, so we expect to see consumer spending growth again in November even after seasonal adjustment. With real consumer spending growing faster than real disposable income in October, something had to give, and that was the personal saving rate. Personal saving as a percentage of disposable personal income is still good at 6.2 percent in October, but it is eroding. The saving rate was 7.2 percent last March. All in, consumers are in good shape, but they are starting to warm up their credit cards and hold back a little less of their paychecks. For now, consumer credit quality and the saving rate are within normal ranges, but both metrics tend to deteriorate as the business cycle lengthens.

Tight labor market conditions are a key support to household finances. We see today in the weekly unemployment insurance claims report that labor market conditions are still very tight, however the trend through October and November has been toward increasing unemployment insurance claims from a very low level. For the week ending November 24, initial claims for unemployment insurance increased by 10,000 to hit 234,000. This is still a low level, but it is clearly up from a very low 202,000 for the week ending September 15. Continuing claims increased by 50,000 for the week ending November 17, to hit 1,710,000. The plant closures recently announced by General Motors, which will impact 15,000 workers in the U.S. and Canada, will not take effect until 2019.

Market Reaction: U.S. equity markets opened with losses. The yield on the 10-year Treasury bond is down to 3.02 percent. NYMEX crude is up to $51.58/barrel. Natural gas futures are down to $4.50/mmbtu.

For a PDF version of this report, click here: October 2018 Income & Spending, Nov. 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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Comerica Bank's Florida Index Ticks Up

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

Comerica Bank’s Florida Economic Activity Index increased 0.1 points in September to a level of 115.2. September’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. August’s index reading was 115.1.

The Comerica Bank Florida Economic Activity Index continued to improve in September. Including upward revisions to historical data, our Florida Index has now increased for six consecutive months. Seven of the nine index components were positive in September. They were nonfarm payrolls, unemployment insurance claims (inverted), housing starts, house prices, industrial electricity demand, total state trade and sales tax revenue. Hotel occupancy, which has trended down in 2018, was the only component to go negative for the month. Total enplanements, which have also trended down since May, went unchanged in September. Some industries, including the seafood industry and farming in the Panhandle, have been profoundly impacted by Hurricane Michael which struck Florida in October. However, in the high level economic data we see only mild weakness in some indicators. The hurricane did not appear to impact the nonfarm payroll numbers for Florida, but the state did see an uptick in initial and continuing claims for unemployment insurance for October. Ongoing economic momentum in the larger regions of Tampa, Miami and Orlando will likely mask issues in the Panhandle. The state economy has a lot of momentum with real GDP growth north of 3 percent since 2017 Q3. Lower prices at the gas pump will support the state’s tourism industry heading into the holiday travel season.

For a PDF version of this article, please click here: Comerica Bank’s Florida Index Ticks Up

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

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Comerica Bank's Texas Index Little Changed

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

Comerica Bank’s Texas Economic Activity Index increased by 0.1 points in September to 135.7. September’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, 4.2 points above the average for 2016. August’s index reading was revised to 135.6.

The Comerica Bank Texas Economic Activity Index was little changed in September after dipping slightly in July and August. The three-month stall in the Texas Index over the summer is largely due to declining hotel occupancy and flat housing starts. Now as oil prices slide, the drilling rig count will likely also decline further, suppressing the headline index. Fortunately, overall job growth for the state remains positive, with October showing a strong 32,000 job gain for the month. For our September Texas Index, five factors were positive, three were negative and one was unchanged. Positives were nonfarm payrolls, unemployment insurance claims (inverted), house prices, total state trade and sales tax revenue. Negatives for the month were housing starts, rig count and hotel occupancy. Industrial electricity sales were unchanged in September after easing in August. If there is good news in the oil patch it is that natural gas prices have increased from $3 per MMBtu for most of 2018, to over $4 by mid-November. However, this will not completely offset the pain from tighter margins on oil production as West Texas Intermediate crude struggles to stay above $50 per barrel. The 5 State Index graph on this page shows recent flattening in Texas, California and Michigan, all sizeable states with key industrial sectors. This should be taken as a cautionary signal for the overall U.S. economy as we head into year end.

For a PDF version of this report, 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 Unchanged

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

Comerica Bank’s Michigan Economic Activity Index was unchanged in September at a level of 118.1. September’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. August’s index reading was 118.1.

Comerica Bank’s Michigan Economic Activity Index was unchanged in September after easing for each of the three prior months. Recent negatives have been broad-based, but offset by ongoing state job growth. For the year ending in October, Michigan payrolls are still up 1.4 percent. However, we expect that year-over-year gain in payrolls to decrease as we finish out 2018 and turn into 2019. State job growth and auto production will both be challenged in the years ahead after General Motors announced the closure of 5 plants in the U.S. and Canada in 2019, including the Detroit-Hamtramck assembly plant and the Warren, Michigan transmission plant. A total of nearly 15,000 workers will be laid off due to the five plant closures. In September, five Michigan Index components were positive. They were nonfarm employment, unemployment insurance claims (inverted), housing starts, house prices and auto production. Industrial electricity demand, hotel occupancy and state sales tax revenues were negatives in September for Michigan, while total state trade was unchanged. Our 5 State Index graph on this page shows flattening state indexes for Texas, California and Michigan, all sizeable states with significant industrial bases. This should be taken as a cautionary sign for the overall U.S. economy at the end of 2018.

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

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

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Comerica Bank's California Index Inches Up

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

Comerica Bank’s California Economic Activity Index increased by 0.1 points in September to 124.0. September’s reading is 26 points, or 27 percent, above the index cyclical low of 97.7. The index averaged 121.1 points in 2017, 2.5 points above the average for all of 2016. August’s reading was revised to 123.9.

Comerica Bank’s California Economic Activity Index saw a modest gain in September, up for the second consecutive month. Five of the eight factors were positive for September including nonfarm employment, unemployment insurance claims (inverted), house prices, total state trade and the Dow Jones technology stock index. The three negative factors were housing starts, industrial electricity demand and hotel occupancy. The labor components, house prices and tech sector valuations have been consistent positives for our index so far in 2018. However, California house prices, particularly in Southern California, are moderating on a year-year basis and tech stocks have declined recently. According to Case-Shiller data, San Diego home prices were up 4 percent in the 12 months ending in September, the slowest annual home price growth for that area since 2012. Los Angeles home prices were up 5.6 percent. San Francisco home prices were still up a strong 10 percent in September. The Dow Jones technology stock index slid into correction territory after peaking in early October and remains down 14.3 percent through November 27. Financial market volatility and rising borrowing costs may continue to weigh on tech stocks. Trade policy with China is another wildcard. The Trump Administration has threatened to increase tariffs on Chinese imports in January. The G-20 meeting in Buenos Aires this week may provide an opportunity for more U.S./China discussions on trade.

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

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

Comerica Bank’s Arizona Economic Activity Index increased by 0.3 percent in September to a level of 113.0. September’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 August index reading was 112.7.

The Comerica Bank Arizona Economic Activity Index was up by a moderate 0.3 percent in September, showing continued momentum in the Arizona economy. Eight of the nine indicators were positive for the month, with the ninth indicator remaining unchanged. This was the first time without a negative sub-index reading since October 2017, nearly a year ago. The positive indicators were nonfarm employment, unemployment insurance claims (inverted), housing starts, house prices, industrial electricity demand, hotel occupancy, state sales tax revenue, and enplanements, while total state trade was unchanged for the month. Although the resolution of the U.S.-Mexico-Canada Trade Agreement, which remains to be ratified by each country, has removed some uncertainty for Arizona businesses, significant trade-based risk remains in place for the state’s economy. Recent tensions at the U.S.-Mexico border have added some anxiety to the Arizona business community. Arizona’s largest trade partner is Mexico, accounting for 36 percent, or $7.6 billion, of the state’s export purchases in 2017. Meanwhile, our 5 State Index graph on this page shows flattening state indexes for Texas, California, and Michigan, all sizeable states with significant industrial bases. This should be taken as a cautionary sign for the overall U.S. economy at the end of 2018.

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

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

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October 2018 New and Existing Home Sales, Sept. House Prices

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

New Home Sales Are Falling Hard

*     New Home Sales fell by 8.9 percent in October, to a 544,000 unit annual rate.
*     Existing Home Sales increased by 1.4 percent in October, to a 5,220,000 unit annual rate.
*     Q3 Real GDP growth unchanged at 3.5 percent in second estimate.

The housing market is cooling rapidly. Housing affordability is taking a hit as mortgage rates increase and labor and materials costs increase for new construction. New home sales fell hard by 8.9 percent in October, down to a 544,000 unit annual rate, the weakest annualized rate since March 2016. Sales were down in all four Census regions. The months’ supply of new homes available for purchase increased again, to 7.4 months’ worth. This will put builders back on their heels and result in fewer housing starts at year end, and also weigh on Q4 GDP. Existing home sales for October increased by 1.4 percent to a 5.22 million unit rate. Despite the modest October gain, the trend in existing home sales has been down since November 2017. In October, existing home sales in the Northeast gained 1.5 percent. The Midwest eased by 0.8 percent. The South increased by 1.9 percent. The West showed the largest percentage gain, up 2.8 percent. The months’ supply of existing homes for sale notched down to 4.3 months’ worth. Over the 12 months ending in October, the median sale price of an existing home increased by 3.8 percent, not accounting for size and quality changes.

According to the Case-Shiller U.S. National Home Price Index, house prices were up in September by 5.5 percent over the previous 12 months. That was the smallest year-over-year gain since December 2016. Among the cities in the Case-Shiller 20-City Composite Home Price Index, only Las Vegas is showing double digit year-over-year gains, up 13.5 percent in September. Previously hot West Coast markets are coming down to earth. Western markets are still generally showing stronger price gains that eastern markets.

Third quarter real GDP growth was unrevised in the second estimate, up 3.5 percent on an annualized basis. Corporate profits were strong in Q3, up by $76.0 billion nominally, compared with a $65.0 billion increase in Q2. 2018Q3 nominal corporate profits were 10.3 percent above 2017Q3. We believe profits are vulnerable in 2019 as labor costs and interest rates increase.

The Advance Economic Indicators Report points to a wider trade gap in October. The strong dollar and cooling global demand are key culprits. The trade war between the U.S. and China is skewing the trade data as companies on both sides of the Pacific try to time their shipments according to expected changes in tariffs.

Recent comments by Federal Reserve Vice-Chair Richard Clarida and Chicago Fed President Charles Evans are consistent with a 25 basis point increase in the fed funds rate at the conclusion of the upcoming FOMC meeting over December 18/19. The implied probability of a December 19 rate hike is up to 83 percent. A December fed funds rate hike will put upward pressure on home mortgage rates.

Market Reaction: U.S. equity markets opened with gains. The 10-year Treasury bond yield is up to 3.07 percent. NYMEX crude oil is down to $51.12/barrel. Natural gas futures are down to $4.41/mmbtu.

For a PDF version of this report, click here: October 2018 New and Existing Home Sales, Sept. House Prices, FedSpeak, Q3 Profits

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 16, 2018

November 16, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Most U.S economic metrics continue to perform well heading into year end. 

The marquis number for the week was retail sales. Nominal retail sales for October increased by 0.8 percent, after dipping by 0.1 percent in September. The headline number was boosted by higher gasoline prices for the month. Service stations sales increased by 3.5 percent in October. They will fall in November with lower petroleum prices. Also, auto sales helped the headline number. Unit auto sales increased to a 17.5 million unit pace in October, which we believe will not be sustained in the months ahead. The dollar value of retail auto and parts sales increased by 1.1 percent in October. When we look at retail sales minus gas stations and autos, the numbers are less impressive, up 0.3 percent for the month. Still, most categories were positive for the month. Consumer conditions are generally strong heading into the heart of the holiday shopping season. 

Consumer prices were warm in October, according to the headline Consumer Price index, which increased by 0.3 percent for the month. This was the strongest monthly gain since last January. Energy was the culprit. The energy sub-index was up 2.4 percent for the month. We expect to see a sizeable decline in the energy price index in November, reflecting the fall in petroleum prices. Core CPI (all items less food and energy) was well behaved, gaining 0.2 percent in October. The 12-month gain in core CPI eased to 2.1 percent in October. 

Industrial production in October was a little weaker than expected, increasing by just 0.1 percent, the smallest monthly gain since May. There was some drag from hurricanes in September and October, but it was minimal, according to the Federal Reserve. Manufacturing output increased by 0.3 percent in October, despite less activity by auto makers. Vehicle assemblies fell from an  11.58 million unit annual rate in September, to 11.08 in October. Mining output eased by 0.3 percent and utility output declined by 0.5 percent for the month. Overall capacity utilization slipped to 78.4 percent in October. 

Initial claims for unemployment insurance bumped up by 2,000 for the week ending November 10, to hit a still-low 216,000. Continuing claims jumped up by 46,000 for the week ending November 3, to hit a still-very-low 1,676,000. 

Mortgage applications continued to slide in the week ending November 9. The weekly composite index was down by 3.2 percent as refi apps fell by 4.3 percent and purchase apps fell by 2.3 percent. These numbers are not seasonally adjusted, and so we expect to see some seasonal losses as we head into the winter months. Also, rising interest rates should be expected to put a damper on refi apps. However, purchase apps, which correlate with home sales, are soft. On a four-week moving average basis, purchase apps are down 1 percent from this time last year. 

Small business optimism remained high in October, according to the National Federation of Independent Businesses. Their business optimism index eased slightly to 107.4, still within the high range seen consistently over the last two years. Most indicators in the NFIB survey continue to be positive, including hiring plans and capital spending plans. Earnings expectations were slightly negative.  Earnings and profits may see more pressure as wages and borrowing costs increase next year.

For a PDF version of this report, click here: Comerica Economic Weekly, November 16, 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 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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