February 2019 Leading Indicators, March UI Claims

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

Leading Indicators Improve in February

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

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

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

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

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

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

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FOMC Policy Announcement and Supporting Materials

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

Fed Leaves Fed Funds Rate Unchanged as Expected

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

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

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

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

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

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

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

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

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February PPI, CPI, Biz Confidence, March Mortgage Apps

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

Higher Energy Prices in February Countered by Price Cuts Elsewhere

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

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

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

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

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

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

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

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

 

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February 2019 U.S. Employment

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

The Clunk Heard Around the World

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

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

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

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

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

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

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

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Feb. 2019 ISM Non-Manufacturing and Manufacturing Indexes

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

U.S. Service Sector Index Rebounds Strongly

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

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

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

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

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

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

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

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December 2018 Housing Starts, Case-Shiller HPI, Powell Testimony

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

Housing Indicators Sag at Year End

*     Housing Starts declined by 11.2 percent in December with both single and multifamily starts falling.
*     Housing Permits inched up by 0.3 percent in December to a 1,326,000 unit annual rate.
*     The Case-Shiller U.S. National House Price Index for December was up by 4.7 percent over the year.

According to the Census Bureau, housing starts and permits data for December were affected by the shutdown and so we will expand the confidence interval around the data. According to Census, housing starts were soft at year end 2018, but forward-looking permits data were in better shape. Total housing starts fell noticeably in December, down by 11.2 percent to a 1,078,000 unit annual rate. This is the weakest new home construction rate since September 2016. Single-family starts were down by 6.7 percent, to a 758,000 unit annual rate. Multifamily starts fell by 20.4 percent, to a weak 320,000 unit rate. Total permits were little changed for the month, up 0.3 percent to an 1,326,000 unit annual rate. Single-family permits decreased by 2.2 percent, to an 829,000 unit rate. Multifamily permits firmed up by 4.9 percent, to a 497,000 unit rate. This was the strongest multifamily permit rate since April 2018. Lower mortgage rates are expected to support demand for new homes this spring, which will motivate home construction in the near-term.

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

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

Market Reaction: Stock indexes opened with losses but have since increased. The yield on 10-year Treasury bonds is down to 2.64 percent. NYMEX crude oil is up to $55.64/barrel. Natural gas futures are up to $2.83/mmbtu.

For a PDF version of this report, click here: December 2018 Housing Starts, Case-Shiller HPI, Powell Testimony

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

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

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

Government Shutdown a Consistent Theme in Soft January Data

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

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

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

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

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

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

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

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

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

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

Retail Sales Slump at Year End

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

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

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

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

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

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

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January Consumer Price Index, February Mortgage Apps

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

Consumer Prices Stay Cool, Despite Warmer Headlines

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

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

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

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

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

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

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January NFIB Small Biz Survey, December JOLTS

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

Small Businesses Optimism is Slipping

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

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

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

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

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

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

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January 2019 ISM Non-Manufacturing Index

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

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

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

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

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

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

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

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

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January 2019 U.S. Employment

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

A Very Muddy Jobs Report Should be Discounted

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

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

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

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

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

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

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

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

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January 2019 ADP Jobs

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

Solid ADP Report Heading into Shakier BLS Data

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

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

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

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

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

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

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

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

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December Leading Indicators, January UI Claims

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

Leading Economic Index Moves Down, with an Asterisk*

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

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

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

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

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

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

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

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December 2018 Existing Home Sales

January 22, 2019 by December 2018 Existing Home Sales

Home Sales Still Weak Despite Lower Mortgage Rates

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

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

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

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

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

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



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

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

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December 2018 U.S. Employment

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

A Whale of Jobs Report

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

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

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

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

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

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

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

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December ADP Jobs, UI Claims, Mortgage Apps, ISM-MF

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

Bright and Shiny ADP Jobs Report Contrasts with Other Gloomier Data 

•The ADP Employment Report for December showed an increase of 271,000 private sector jobs.
•Initial Claims for Unemployment Insurance gained 10,000, to hit 231,000 for the week ending Dec. 29.
•Total Mortgage Applications fell by 8.5 percent for the week ending December 28. 
•The ISM Manufacturing Index for December fell to a still-positive 54.1.
•Construction Spending data for November was not released today due to the federal gov. shutdown. 

The ADP Employment Report showed that a greater-than-expected 271,000 net new private sector jobs were added to the U.S. economy in December. The ADP numbers do not have to line up exactly with the official job count from the Bureau of Labor Statistics. The BLS data for December will be released tomorrow morning. The strong ADP job count lifts expectations for tomorrow’s official data release. According to ADP, small businesses (less than 50 employees) added a strong 89,000 jobs in December. Medium sized businesses (50-499 employees), added a robust 129,000 net new jobs. Large businesses increased payrolls by 54,000. Results for December were positive across most sectors. The natural resources and mining sector shed 2,000 jobs, consistent with lower oil prices. Construction was strong, adding 37,000 jobs despite soft housing-related data. Manufacturing was solid, gaining 12,000 workers. Professional and business services added 66,000 net new jobs. Education and healthcare employment was up by 61,000. Leisure and hospitality gained 39,000.  The ADP data can get squirrely in December. It is possible that year-end “purging” effects have inflated the ADP numbers. Some employers may keep former workers on their payrolls until year-end tax documents are filed. 

Other labor data released today was not as positive. Initial claims for unemployment insurance increased by 10,000 for the week ending December 29, to hit a still-low 231,000. It looks like the series is lifting after its September low. Continuing claims increased by 32,000 for the week ending December 22, to hit 1,740,000. 

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

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

Market Reaction: U.S. equity markets opened with losses. The yield on 10-Year T-bonds is down to 2.59 percent. NYMEX crude oil is up to $46.55/barrel. Natural gas futures are down to $2.79/mmbtu.

For a PDF version of this report, click hre:  December ADP Jobs, UI Claims, Mortgage Apps, ISM-MF

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

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FOMC Policy Announcement and Supporting Materials

December 19, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Fed Raises Fed Funds Rate as Expected

•The FOMC voted today to increase the fed funds rate range to 2.25-2.50 percent.
•The new Dot Plot for 2019 is consistent with two 25 basis point rate hikes for the year.

The Federal Open Market Committee voted today to increase the fed funds rate range to 2.25-2.50 percent. The vote was unanimous. The assessment of economic conditions in today’s policy announcement was nearly identical to the November 8 announcement, highlighting strong labor market conditions, good household spending and moderating business investment. Inflation has been well behaved. The Committee judges that some further gradual increases in the fed funds rate will be necessary. Their new dot plot, which shows individual members’ expectations for future interest rates, has shifted down in 2019 compared with the previous dot plot from September. The December dot plot is consistent with two 25 basis point rate hikes in 2019. It does not indicate the timing of those hikes within the year. The new dot plot for 2020 is consistent with one 25 basis point rate hike for that year. This suggests that collectively, the Fed now thinks that it is close to the neutral fed funds rate for this cycle and that it anticipates a maximum fed funds rate of about 3.15 percent for this cycle. The Federal Reserve also released a new set of economic projections which show the median forecasts for GDP, the unemployment rate, PCE price inflation and core PCE price inflation. The median forecast for real GDP growth over 2018Q4-2019Q4 was revised down from 2.5 percent in September, to now 2.3 percent. The unemployment rate forecast for 2019Q4 was unchanged at 3.5 percent. Inflation forecasts were revised down slightly, still near 2 percent. The stock market reacted negatively to the Fed’s policy announcement. Financial news commentary suggests that financial markets were expecting the Fed to be more dovish about future rate hikes.

 In his post-meeting press conference FOMC Chair Jay Powell was positive in his assessment of current economic conditions, but more cautious about future economic risk factors. Powell acknowledge the lower expected path of the fed funds rate as shown by the new dot plot. He explicitly discussed the possibility of two 25 basis point rate hikes in 2019. Powell stressed that monetary policy will be shaped by the condition of the economy and is not on a pre-set course. 

Today’s set of information from the Federal Reserve marks a new phase of Fed policy. Fed policy in 2019 will be marked by fewer rate changes. The changes will remain small, but the timing of the rate changes will be more difficult to predict. Beginning in January, Powell will host a press conference after all eight FOMC meeting of the year, so every meeting will be a “live” meeting.

Market Reaction: U.S. equity prices fell with the release of the Fed policy announcement. The 10-year Treasury yield showed some volatility around the release of the policy announcement, and then dropped to 2.75 percent by about 3:00 pm eastern time. NYMEX crude oil increased to $47.96 per barrel. Natural gas futures are down to $3.48/mmbtu.

 

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

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

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November 2018 Housing Starts, December NAHB

December 18, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Single-Family Starts Are Still Sagging, Multifamily Bounced Back in November

*     Housing Starts were up by 3.2 percent as multifamily starts surged.
*     Housing Permits increased by 5.0 percent in November to a 1,328,000 unit annual rate.
*     Builder Confidence fell in December.

Housing starts increased in November by 3.2 percent, to a 1,256,000 unit annual rate, supported by a surge in multifamily construction. Multifamily starts are usually the more volatile part of total housing starts and that was true in November. Multifamily starts jumped by 22.4 percent in November, to a 432,000 unit annual rate, the strongest pace since last March. Single-family starts declined for the third consecutive month, losing 4.6 percent in November to hit an 824,000 unit annual rate, the weakest monthly rate this year. Over the 12 months ending in November, single-family starts were down by 13.1 percent. Permits for new residential construction increased by 5.0 percent in November to hit a 1,328,000 unit rate, the strongest rate since last April. Again, the push came from multifamily projects. Single-family permits were little changed for the month, gaining 0.1 percent to an 848,000 unit annual rate. Multifamily permits were up by 14.8 percent, to a 480,000 unit annual rate. In sum, single-family construction continues to look weak. Multifamily benefitted from favorable volatility in November but is showing no consistent momentum.

Builder confidence declined in December according to the National Association of Home Builders. Their index fell four points, to 56, the lowest reading since May 2015. Affordability issues were cited as key concerns for home buyers. The recent dip in mortgage rates may bring some buyers back into the market late in the year.

We expect the Federal Reserve to put a little more pressure on home mortgage rates by increasing the fed funds rate range by 25 basis points, to 2.25-2.50 percent Wednesday afternoon. The implied probability of a rate hike calculated by the CME Group from their fed funds futures market has dropped to 75 percent, which is much lower than the implied probabilities for recent expected rate hikes. We expect the Fed’s new dot plot, to be released on Wednesday, to show that FOMC members collectively expect to see fewer rate hikes in 2019 now, compared with what they expected last September.

Market Reaction: Stock indexes opened with gains. The yield on 10-year Treasury bonds is down to 2.84 percent. NYMEX crude oil is down to $48.53/barrel. Natural gas futures are up to $3.47/mmbtu.

For a PDF version of this report, click here: November 2018 Housing Starts, December NAHB

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

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November 2018 Retail Sales, Industrial Production

December 14, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Lower Gasoline Prices Good for Shoppers but Drag on Retail Spending Numbers

*     Retail Sales increased by 0.2 percent in November, weighed down by lower gasoline prices.
*     Industrial Production increased by 0.6 percent in November.

Volatility in the oil market is leaving its mark on many U.S. economic indicators, including retail sales for the month of November. Total nominal retail sales increased by a modest 0.2 percent for the month despite very favorable conditions for consumers. The culprit was gasoline. According to the Oil Price Information Service, the average monthly price for unleaded gasoline fell 6.5 percent in November from $2.89 down to $2.70. So far in December gasoline prices have declined more, so gasoline looks like it will be a drag on nominal retail sales in December as well. Retail sales excluding gasoline increased by a respectable 0.5 percent in November. Most non-energy categories were positive for the month. Electronics stores gained 1.4 percent. Non-store retailers (internet shopping) gained 2.3 percent for the month, after seasonal adjustment. Over the 12 months ending in November, retail sales excluding motor vehicles and gasoline are up a solid 4.6 percent. We expect holiday shopping metrics to be good this season, reflecting strong employment levels, increasing wages, still-good consumer confidence and positive wealth effects for most U.S. households.

U.S. industrial production increased by 0.6 percent in November, which looks like a fine number, but the details are weaker than the headline. Manufacturing is looking softer as output for that sector was unchanged for the month after slipping by 0.1 percent in October. Vehicle assemblies increased by 0.6 percent in November, to an 11.28 million unit annual rate. Over the 12-month period ending in November, manufacturing output is up by 2.0 percent. Mining output was up by 1.7 percent. If oil prices remain in the near-$50 range then mining output could start to ease as drilling and oil field service work gets dialed back. Over the previous 12 months, mining output was up by 13.2 percent. Utility output was up by 3.3 percent in November, weather related. Overall capacity utilization ticked up to 78.48 percent and looks like it is nearing the top of its cycle.

Market Reaction: Equity markets opened with losses. The 10-year Treasury yield is down to 2.89 percent. NYMEX crude oil is down to $52.29/barrel. Natural gas futures are down to $3.68/mmbtu.

For a PDF version of this report, click here: November 2018 Retail Sales, Industrial Production

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 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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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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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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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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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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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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2018Q3 GDP, First Estimate

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

3.5 Percent Q3 Real GDP Growth Masks Major Gyrations in Components

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

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

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

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

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

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

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

Soggy September Is Not Enough to Explain Housing Slump

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

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

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

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

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

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

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

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

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