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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September 2018 Housing Starts, Oct. NAHB, Mortgage Apps

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

Multifamily Construction Is Losing Steam

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

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

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

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

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

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

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

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September 2018 Retail Sales

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

Shoppers Subdued in August and September

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

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

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

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

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

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

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

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September 2018 Consumer Price Index, October UI Claims

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

Consumer Prices Tame

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

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

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

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

For a PDF version of this report, click here: September 2018 Consumer Price Index, October UI Claims

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

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The ADP Employment Report for September showed another strong monthly

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

More Strong Data Sets Up Superlative Shortage

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

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

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

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


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

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

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September 2018 ISM MF Index, August Construction Spending

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

Manufacturing Conditions Still Hot, Construction Still Lukewarm

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

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

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

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

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

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

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FOMC Policy Announcement and Supporting Materials

September 26, 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 2.00-2.25 percent.
*     A fourth rate hike for 2018, on December 19, appears to be very likely.

The Federal Open Market Committee voted today to increase the fed funds rate range to 2.00-2.25 percent. The vote was unanimous. The Fed also announced that they will be increasing the interest rate on excess reserves (IOER) to 2.20 percent, keeping the IOER slightly below the top of the fed funds range. This tactic was introduced at the FOMC meeting of mid-June. The FOMC also directed the Open Market Desk at the New York Fed to further reduce the reinvestment of maturing assets on its balance sheet. Effective in October, the Fed will allow $30 billion worth of Treasury securities to roll of its balance sheet per month, and $20 billion worth of mortgage-backed securities to roll off per month.

In the policy announcement, the FOMC said that current economic conditions are strong, and inflation is near their 2 percent objective. Notably, the Fed removed the word “accommodative” from the policy announcement, which had been previously used to describe monetary policy, indicating that the fed funds rate was below “neutral”. The removal of “accommodative” suggests that the Fed views its policy rate as closer to neutral. Even though this was a clear distinction between today’s policy announcement and previous ones, FOMC Chairman Jay Powell downplayed the distinction in his press conference. Powell also used the word “gradual” many times in his press conference, implying that further 25-basis-point increases in the fed funds rate are likely over the near term. We expect to see another 25 basis point rate hike announced on December 19, for a total of four such rate hikes in 2018. The implied odds of a December 19 rate hike now stand at about 80 percent.

In the Fed’s economic projections released today, we see another increase in expectations for real GDP growth. Now, the Fed collectively expects real GDP growth of 3.1 percent this year and 2.5 percent in 2019. In June, the expected growth rates were 2.8 percent for 2018 and 2.4 percent for 2019.

The Dot Plot for 2019, showing FOMC member’s expectations for future interest rates, was little changed from the previously issued Dot Plot from June. It is consistent with three 25 basis point fed funds rate hikes in 2019, and one 25 basis point increase in 2020, but there is a broad range of expectations. We expect the first fed funds rate hike of 2019 to come on March 20.

Beginning with the first FOMC meeting of next year, over January 29/30, Chairman Powell will have a press conference after every FOMC meeting. This means that all 8 FOMC meetings will be in play for policy changes next year. The every-other-meeting cadence of press conferences had effectively removed half of the FOMC’s meetings from consideration for policy changes.

Market Reaction: U.S. equity prices climbed with the release of the Fed policy announcement, and then moderated, and then fell. The 10-year Treasury yield showed a little volatility around the release of the policy announcement, and then dropped to 3.06 percent by about 3 pm eastern time. NYMEX crude oil eased to $71.56 per barrel. Natural gas futures are down to $2.98/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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August Leading Indicators, Existing Home Sales, September UI Claims

September 20, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Most Indicators Up but Housing Sideways

*     The Conference Board’s Leading Economic Index for August increased by 0.4 percent.
*     Existing Home Sales for August were unchanged from July, at a 5,340,000 unit annual rate.
*     Initial Claims for Unemployment Insurance fell by 3,000 for the week ending Sept. 15, to hit 201,000.

The Conference Board reported a moderate 0.4 percent increase in their Leading Economic Index for August. Manufacturing orders were a significant positive contributor along with credit metrics, interest rate spread and stock prices. The LEI has now increased for the past 11 consecutive months. The Coincident Index gained 0.2 percent in August for its third consecutive monthly gain. The Lagging Index increased by 0.2 percent in August after losing 0.2 percent in July. The positive trifecta of indexes in August is consistent with our expectations of ongoing moderate-to-strong economic growth for the remainder of this year.

Existing home sales for August were unchanged from July at a 5,340,000 unit annual rate. This is consistent with other housing market metrics that show little-to-no momentum in many regional markets. Sales in the Northeast gained 7.6 percent for the month. The Midwest saw a smaller 2.4 percent gain. The South was little changed at -0.4 percent while the West dropped by 5.9 percent. Hurricane Florence will skew housing data from the South for months to come. The available inventory of existing homes for sale remained tight at 4.3 months’ worth. The median sale price of an existing home in August was up by 4.6 percent over the last year.

Unemployment insurance continues to trend down to levels unheard of since the late 1960’s. Initial claims dropped by 3,000 for the week ending September 15, to hit 201,000. Continuing claims for the week ending September 8 fell by 55,000 to hit 1,645,000. The late-summer downside breakout in UI claims appears to be sustainable, confirming very very tight labor market conditions. We expect to hear many companies voice complaints about the shortage of available labor through the remainder of this year.

Market Reaction: Equity markets opened with gains. The 10-Year Treasury bond yield is down to 3.06 percent. NYMEX crude oil is down to $70.91/barrel. Natural gas futures are up to $2.92/mmbtu.


For a PDF version of this report, click here: August Leading Indicators, Existing Home Sales, September 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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August 2018 Housing Starts, September Mortgage Apps

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

Residential Construction Data Zigs and Zags

*     Housing Starts increased by 9.2 percent in August to a 1,282,000 unit annual rate.
*     Housing Permits decreased by 5.7 percent in August to a 1,229,000 unit annual rate.
*     Mortgage Applications gained 1.6 percent for the week ending September 14.

Housing starts warmed up significantly in August but permits cooled to the lowest rate since May 2017. Starts increased by 9.2 percent, to a 1,282,000 unit annual rate with help from multifamily projects. Single-family starts gained 1.9 percent for the month, to an 876,000 unit rate, while multifamily starts jumped by 29.3 percent to a 406,000 unit rate. The rebound in starts relative to permits in August is consistent with the wider-than-normal positive gap between permits and starts (more permits than starts) that we have seen since early 2017. Total permits fell by 5.7 percent in August to a 1,229,000 unit annual rate. Single-family permits fell by 6.1 percent, to an 820,000 unit annual rate. Multifamily permits fell by 4.9 percent, their fifth consecutive monthly decline, to a 409,000 unit annual rate. Both single and multifamily construction metrics have cooled as housing affordability dropped.

Total mortgage applications increased by 1.6 percent for the week ending September 14, helped by a bounce back in refi apps. After falling for three consecutive weeks, refi apps increased by 3.7 percent at mid-September. Purchase apps inched up by 0.3 percent, registering their third consecutive gain. On a four-week moving average basis, refi apps are down 39 percent from a year ago, while purchase apps are nearly even, down just 0.1 percent. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage increased to 4.88 percent.

Market Reaction: Stock indexes opened with gains. The yield on 10-year Treasury bonds is up to 3.08 percent. NYMEX crude oil is up to $70.40/barrel. Natural gas futures are down to $2.89/mmbtu.


For a PDF version of this report, click here: August 2018 Housing Starts, September 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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August 2018 Retail Sales, Industrial Production, July Inventories

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

Shoppers Went on Vacation in August

•     Retail Sales increased by just 0.1 percent in August.
•     Industrial Production increased by 0.4 percent in August.
•     Manufacturing and Trade Inventories expanded by 0.6 percent in July.

After a strong 0.7 percent gain in July, nominal retail sales inched up by just 0.1 percent in August. If we apply the headline Consumer Price Index increase of 0.2 percent for the month, we can say that real retail sales eased by about 0.1 percent in August. We can also say that despite very high consumer confidence, robust job gains and moderate wage growth, consumers are showing restraint, maintaining a reasonably strong personal saving rate. Languid housing markets, flattish auto sales, lingering student debt and an aging population are all counterbalances to the strong labor and confidence data that we are seeing lately. In our September U.S. Economic Outlook we call for only-moderate real consumer spending growth of 2.0 percent (annualized) in Q3 after a strong 3.8 percent growth rate in Q2. We expect moderate consumer spending in Q3 to contribute to a step down in real GDP growth from 4.2 percent in Q2 to about 3.1 percent in Q3.

In August, retail sales of autos fell by 0.8 percent as unit auto sales were little changed at a 16.7 million unit annual rate. Furniture sales dropped by 0.3 percent, unenergized by home sales. Gasoline station sales gained 1.7 percent even as gasoline prices dropped slightly. Clothing store sales fell by 1.7 percent in August, after gaining a strong 2.2 percent in July. Preparations and evacuations due to Hurricane Florence will support some categories of retail sales in September and could weigh on others (like auto sales).

U.S. industrial production increased by 0.4 percent in August, after a similar gain in July. Manufacturing output was up by 0.2 percent. Mining gained 0.7 percent and utility output increased by 1.2 percent in August. Overall capacity utilization tightened to 78.1 percent. The cyclical highs for capacity utilization have trended down since the mid-1960s, so it looks like we are getting close to a cyclical high now. With both capacity and labor availability becoming increasingly binding constraints to output, strong business investment will be needed to sustain growth. The Fed says we are still below the neutral rate of interest, meaning that further gradual increases in the cost of capital will not necessarily deter businesses from taking on debt to expand capacity. However, any increase in the cost of capital is a weight on the corporate balance sheet. For now, corporate profits remain strong, suggesting that increased labor and capital costs can be absorbed.

Manufacturing and trade inventories increased by 0.6 percent in the first month of the third quarter. In the second quarter, inventories were a sizeable drag on real GDP growth even though the headline rate hit 4.2 percent. It looks like inventories may come back in Q3, supportive of Q3 GDP. We incorporate a large $55 billion ($2012) swing in inventories in our real GDP calculation for Q3. The inventory-to-sales ratio ticked up slightly in July, but it still looks like it is on an overall downward trend, which is a positive economic signal, implying that further production is needed to maintain sales.

Market Reaction: Equity markets opened with losses. The 10-year Treasury yield is up to 2.99 percent. NYMEX crude oil is down to $68.16/barrel. Natural gas futures are down to $2.76/mmbtu.

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

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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August 2018 Consumer Price Index, September UI Claims

September 13, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Consumer Prices Up Moderately in August

*     The Consumer Price Index for August increased by 0.2 percent.
*     Initial Claims for Unemployment Insurance fell by 1,000, to hit 204,000 for the week ending Sept. 8.

Consumer inflation remains moderate in August as the headline Consumer Price Index increased by 0.2 percent, the same as it did in July, and for four out of the last five months. Over the 12 months ending in August the CPI was up by 2.7 percent, largely due to energy price gains late last year and early this year. In both June and July, the 12-month change in the CPI was higher at 2.9 percent. With recent moderation in monthly gains, the year-over-year changes in the CPI will gradually come down this fall. In August, the energy sub-index was up by 1.9 percent after falling in June and July. The food sub-index was up only 0.1 percent. Core CPI (all items less food and energy) increased by 0.1 percent in August.

It is a complex inflation picture right now. We see from today’s CPI report for August and yesterday’s PPI report for August that the high-level inflation indexes are coming back to earth after posting strong year-over-year gains through mid-summer. However, average hourly earnings warmed up in August and virtually all other labor market indicators are showing tight conditions, which our textbooks say is a precursor to higher inflation. We believe that the Federal Reserve is highly likely to raise the fed funds rate twice more this year, on September 26 and December 19, by 25 basis points. They want to remove monetary accommodation as the economy warms up, keeping an eye on the inflationary potential of very tight labor markets. As we move through 2019 however, we believe that the Fed will downshift its cadence of a rate hike every other meeting as year-over-year inflation measures moderate and economic growth eases by the end of next year.

Initial claims for unemployment insurance continue their downside breakout, visible since early July. Initial claims fell by 1,000 for the week ending September 8, to hit an extremely low 204,000. Continuing claims fell by 15,000, to hit 1,696,000 for the week ending September 1.

Market Reaction: U.S. equity markets opened with gains. The 10-Year Treasury bond yield is down to 2.96 percent. NYMEX crude oil is down to $69.29/barrel. Natural gas futures are down to $2.83/mmbtu.

For a PDF version of this report, click here: August 2018 Consumer Price Index, September 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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August 2018 Producer Prices and Mortgage Apps

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

Inflation Absent from Headline Price Indexes

*    The Producer Price Index for Final Demand declined by 0.1 percent in August.
*    Mortgage Applications decreased by 1.8 percent for the week of September 7.

The Producer Price Index for Final Demand declined by 0.1 percent in August, indicating no surge in overall inflation despite tight labor market conditions and also despite new import tariffs. However, over the 12-month period ending in August, the PPI for Final Demand was up by 2.8 percent, due to stronger monthly gains last fall and early this year. Those gains were pushed primarily by increasing crude oil prices. The 12-month gain in PPI is down from a high of 3.4 percent this past June. We expect the year-over-year gains in the headline PPI to continue to ease this fall. In August, the energy price sub-index for final demand goods increased by 0.4 percent, after falling by 0.5 percent in July. We still look for tighter global oil markets next year, supporting small price gains, but we do not expect that oil will push on inflation indicators in 2019 to the extent that it has in 2018. Food prices eased by 0.6 percent in August. Wholesalers’ and retailers’ margins eased in August, so the trade component of headline PPI also eased for the month, down 0.9 percent. Core PPI (defined as final demand less foods, energy and trade) was up just 0.1 percent in August and was up by 2.9 percent over the previous 12 months.

Total mortgage applications fell by 1.8 percent for the week of September, with a sharp drop in refinancing activity. Refi apps fell by 5.9 percent in early September, after two previous weekly declines. On a four-week moving average basis, refi apps are down almost 38 percent from a year earlier, consistent with the rising interest rate environment. Mortgage applications for purchase increased by 0.9 percent in early September, the second straight weekly increase. Compared to a year ago, purchase apps are down 0.7 percent, consistent with flat-to-slumping home sales. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage increased to 4.84 percent.

Market Reaction: Equity markets opened with losses but have reversed. The yield on 10-Year Treasury bonds is down to 2.96 percent. NYMEX crude oil is up to $70.97/barrel. Natural gas futures are down to $2.82/mmbtu.

For a PDF version of this report, click here: August 2018 Producer Prices and 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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August 2018 U.S. Employment

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

Another Good Jobs Report Keeps the Fed on Track for a Sept. Rate Hike

*     Payroll Employment increased by 201,000 jobs in August. June and July were revised down by 50,000.
*     The Unemployment Rate for August was unchanged at 3.9 percent.
*     Average Hourly Earnings increased by 0.4 percent in August, and were up 2.9 percent over the year.
*     The Average Workweek in August was unchanged at 34.5 hours.

August payroll employment increased by a solid 201,000 jobs. Negative revisions totaling 50,000 for June and July bought some of that back, but labor market conditions still look good. Average hourly earnings increased by 10 cents, or 0.4 percent, to hit $27.16, up 2.9 percent over the previous 12 months. That is the strongest year-over-year gain in average hourly earnings this side of the Great Recession. The average workweek was unchanged at 34.5 hours. The stronger earnings numbers and the solid monthly payroll increase will keep the Federal Reserve on track to increase the fed funds rate by 25 basis points, to a range of 2.00-2.25 percent, when the FOMC next meets over September 25/26. The implied odds of a September 26 rate hike are near 100 percent according to the CME Group.

Establishment detail was mixed, but the big categories, professional/business services and educational/healthcare had sizeable gains. Mining and logging industries added 6,000 jobs in August. Construction built 23,000 net new jobs for the month. Manufacturing showed a small net loss of 3,000 jobs, breaking a 12-month string of gains. Retail trade was soft, shedding 5,900 jobs in August. Information industries reduced payrolls by 6,000. Financial services employment increased by 11,000 jobs on net. Employment in professional/business services increased by a strong 53,000 jobs, as it also did in education/healthcare. Leisure and hospitality industries added 17,000 net new jobs. Government employment eased by 3,000 jobs in August.

Market Reaction: U.S. equity markets opened with losses. The 10-Year T-bond yield is up to 2.93 percent. NYMEX crude oil is down to $67.20/barrel. Natural gas futures are down to $2.77/mmbtu.

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

September 6, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Positive Data Show a Strong U.S. Economy

*     The August ADP Employment Report shows an increase of 163,000 private sector jobs.
*     The ISM Non-Manufacturing Index for August increased to a strong 58.5.
*     Initial Claims for Unemployment Insurance fell by 10,000 for the week ending Sept. 1, to hit 203,000.

Today’s labor market indicators show very good conditions for job seekers. The August ADP job report posted a moderate increase of 163,000 private-sector payroll jobs for the month. Tomorrow we will get the official Bureau of Labor Statistics job count for August. According to ADP, medium sized businesses (50-499 employees) did the bulk of the hiring in August, adding a net of 111,000 jobs. Large businesses added 31,000 and small businesses added just 21,000 net new jobs for the month. The manufacturing sector is still adding jobs, up 19,000 in August. Construction added 5,000. Services industries increased payrolls by 139,000. Government workers are not included in the ADP numbers. If we add about 5,000 to the 163,000 total for ADP, that gives us a reasonable guess of around 168,000 for the official BLS job count tomorrow.

The ISM Non-Manufacturing Index increased in August from 55.7 to 58.5. As previously reported, the ISM Manufacturing Index also showed a healthy increase, to 61.3 for the month. The combination of two strong ISM indexes for August is a very good indicator for the U.S. economy, consistent with ongoing moderate-to-strong GDP growth through the third quarter. The production, employment and new orders sub-indexes for the ISM Non-MF Index all improved in August. Fourteen out of 16 industries reported expansion for the month, only mining and forestry reported contraction. Anecdotal comments were positive, but show that some businesses (construction, information and mining) are very concerned about the impact of tariffs on prices.

Initial claims for unemployment insurance dropped by another 10,000, to hit 203,000 for the week ending September 1. This is the lowest level for initial claims since December 6, 1969. A downside breakout of UI claims from the already-very-low levels from mid-year is truly exceptional. Continuing claims dipped by 3,000 for the week ending August 25, to hit 1,707,000.

Market Reaction: U.S. equity markets were mixed at the opening bell. The yield on 10-Year T-bonds is up to 2.90 percent. NYMEX crude oil is up to $68.74/barrel. Natural gas futures are down to $2.78/mmbtu.

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

September 4, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Manufacturing Conditions Strengthen Noticeably in Late Summer

*     The ISM Manufacturing Index for August increased to a very strong 61.3 percent.
*     Construction Spending in July was little changed, up by 0.1 percent.

The ISM Manufacturing Index jumped in August, gaining 3.2 percentage points to hit 61.3. A reading above 50 is positive, and a reading above 60 indicates very strong conditions. Seven out of 10 sub-indexes improved in August, including new orders, production and employment. Even with strong production numbers, many businesses are facing labor constraints that are limiting output. The Prices Index eased to a still-hot 72.1, suggesting that inflationary pressure is persistent among manufacturers. Imports eased slightly to 53.9. New export orders were little changed for the month at a positive 55.2. Also noteworthy, the Inventories Index increased to 55.4, its eighth consecutive month in expansion territory, above 50. However, the Customers Inventories Index was still weak, improving to 41 in August, indicating pent-up demand by customers. All in…the numbers look very good as the headline index reached its highest level since May 2004. Of the 18 reporting industries, 16 reported growth in August. Wood products and primary metals reported contraction. Anecdotal comments were very positive about demand. However, there is still concern about pricing (both upstream and downstream) and about the impact of tariffs.

Total construction spending for July edged up by just 0.1 percent. Private residential construction gained 0.6 percent from projects on existing structures. Both new single-family and multifamily construction spending eased for the month. Over the 12 months ending in July, spending on private residential projects increased by 6.7 percent. Private nonresidential construction spending fell by 1.0 percent in July, but it was up by 3.2 percent over the previous 12 months. Public construction spending gained 0.7 percent in July and was up by 8.3 percent over the year.
Market Reaction: U.S. equity markets opened with losses. The yield on 10-Year Treasury bonds is up to 2.90 percent. NYMEX crude oil is up to $70.28/barrel. Natural gas futures are down to $2.85/mmbtu.

 

For a PDF version of this report, click here: August 2018 ISM MF Index, July 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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July 2018 Income & Spending, August UI Claims

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

Moderate Income and Spending Gains, Less Pyrotechnic


*     U.S. Nominal Personal Income increased by 0.3 percent in July.
*     After inflation and taxes, Real Disposable Income was up by 0.2 percent.
*     Real Consumer Spending increased by 0.2 percent in July.
*     The Personal Consumption Expenditure Price Index inched up by 0.1 percent in July.
*     Initial Claims for Unemployment Insurance gained 3,000, to hit 213,000, for the week ending August 25.

The July income and spending data shows moderate real income growth at the start of the third quarter, accompanied by moderate real consumer spending gains. Nominal income was up by 0.3 percent in July, extending the recent monthly pattern of 0.3 to 0.4 percent gains. Wages and salaries were up by 0.4 percent, consistent with moderate job and wage gains. After adjusting for inflation and taxes, real disposable income increased by 0.2 percent for the month. Real consumer spending also increased by 0.2 percent in July, leaving the personal saving rate little changed at 6.7 percent. Inflation was tame in July. The Personal Consumption Expenditure (PCE) Price Index was up by just 0.1 percent for the second month in a row. Excluding food and energy, the core PCE Price Index was up by 0.2 percent. Even with only-moderate inflation over the past two months, we still expect the Federal Reserve to increase the fed funds rate range by 25 basis points at the conclusion of the September 25/26 FOMC meeting. Moderate income and spending growth and tame inflation, is making the start of the third quarter look less pyrotechnic than the second quarter, where real GDP growth was just revised up to a 4.2 percent annual rate.

Initial claims for unemployment insurance notched up by 3,000 workers, to hit a still-very-low level of 213,000 for the week ending August 25. The four-week moving average for the initial claims series is at the lowest level since December 1969. Continuing claims fell by 20,000 for the week ending August 18, to hit 1,708,000, also an exceptionally low number.

Market Reaction: U.S. equity markets opened with losses. The yield on the 10-year Treasury bond is down to 2.86 percent. NYMEX crude is up to $69.77/barrel. Natural gas futures are up to $2.88/mmbtu.

For a PDF version of this report, click here: July 2018 Income & Spending, August 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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July 2018 New and Existing Home Sales

August 23, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Home Sales Slump as Rates Rise

•    New Home Sales fell by 1.7 percent in July, to a 627,000 unit annual rate.
•    Existing Home Sales decreased by 0.7 percent in July, to a 5,340,000 unit annual rate.
•    Initial Claims for Unemployment Insurance eased by 2,000 to hit 210,000 for the week ending Aug. 18.

Home sales continued their summer slump in July. New home sales fell by 1.7 percent in July, to a 627,000 unit annual rate. This was the second consecutive monthly decline in new home sales. Moreover, it was the weakest sales rate since October 2016. The inventory of new homes available inched up to a moderate 5.9 months’ worth, certainly looser than the 4.9 months’ worth of inventory from last November.

Existing home sales fell by another 0.7 percent in July, to a 5,340,000 unit annual rate. This was the fourth consecutive monthly decline. The good news is that the downtrend in existing home sales has been only gradual and not precipitous, and the monthly rate remains reasonably close to the long run average for existing home sales. However, the bad news is that July existing home sales showed the continuation of an obvious slump, and the July sales rate was the lowest since February 2016. The inventory of existing homes for sales in July remained tight at 4.3 months’ worth. The median sales price of an existing home was up by 4.5 percent in July over the previous 12 months, according to the National Association of Realtors.

Mortgage applications for purchase increased by 2.9 percent for the week ending August 17, breaking a 5-week slide in purchase apps that included the first two weeks of August. The mortgage apps data from early August suggests that August could be another soft month for home sales. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage remained at 4.81 percent for the week.

Labor indicators remain consistent with exceptionally tight conditions. Initial claims for unemployment insurance eased by 2,000 for the week ending August 23, to hit 210,000. Continuing claims also fell by 2,000 for the week, to hit 1,727,000.

Most U.S. economic indicators remain positive through July. However, housing-related data is a clear exception to the rule. Given relatively high consumer confidence and strong labor market conditions, the slump in home sales shows a heightened sensitivity to the loss of affordability as home prices increase and mortgage rates climb. The vulnerability of the housing market to interest rate increases will put pressure on the Federal Reserve to slow the rate of interest rate hikes through 2019. We still expect to see a 25 basis point increase in the fed funds rate announced on September 26, and another one on December 19. But it is looking less likely that we will see a repeat of the four rate hikes in 2019, that we expect to see in 2018.

Market Reaction: U.S. equity markets opened with gains. The 10-year Treasury bond yield is down to 2.82 percent. NYMEX crude oil is down to $67.74/barrel. Natural gas futures are down to $2.93/mmbtu.

For a PDF version of this report, click here: July 2018 New and 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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July 2018 Producer Prices and Mortgage Apps, August UI Claims

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

Upstream Prices Sedate in July

*     The Producer Price Index for Final Demand was unchanged in July.
*     Mortgage Applications decreased by 2.6 percent for the week of July 27.
*     Initial claims for unemployment insurance fell by 6,000, to hit 213,000 for the week ending August 4.

The Producer Price Index for Final Demand was unchanged in July. This was the second month of moderating price gains after a 0.5 percent surge in the headline PPI in May. The question of the summer is…what about import tariffs? In July we see no evidence of broad-based price pressure on industries due to tariffs. This stands in stark contrast to some dire anecdotal comments seen in other reports. The sedate PPI report for July does not mean that there is no pressure, it simply means that it is not showing up in the headline PPI series. The broader the application of tariffs, the higher they are and the longer they are in place the more likely we are to see their stamp on macroeconomic data, but for now, it is not there. Individual companies are definitely feeling the pressure from tariffs; however, most companies, and most consumers are not. Both the foods and energy sub-indexes for the PPI eased in July. Some energy prices increased in June; however, the electric power index fell 1.6 percent for the month. The core series for final demand (less food, energy and trade) was up by 0.3 percent for the second month in row, and is up 2.8 percent over the previous 12 months. Headline PPI was up 3.3 percent in July over the previous year, down a tenth from the year-over-year reading for June.

Initial claims for unemployment insurance fell by 6,000, to hit 213,000 for the week ending August 4. Through July the trend in initial claims was down, to an exceptionally low level. Continuing claims gained 29,000, to hit 1,755,000 for the week ending July 28, also still exceptionally low.

Total mortgage applications fell by 2.6 percent for the week of July 27, as both purchase and refi apps eased. Refis were down 1.7 percent for the week. Purchase apps dipped by 3.1 percent, the third consecutive weekly decline. On a four-week moving average basis, purchase apps are still up 3.0 percent over a year ago. But the recent trend looks weak, consistent with a housing market that is losing some steam. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage increased to 4.84 percent.

Market Reaction: Equity markets opened with losses. The yield on 10-Year Treasury bonds eased to 2.93 percent. NYMEX crude oil is up to $67.10/barrel. Natural gas futures are down to $2.95/mmbtu.

For a PDF version of this report, click here: July 2018 Producer Prices and Mortgage Apps, August 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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July 2018 U.S. Employment

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

A Good Report, but Below Expectations

•     Payroll Employment increased by 157,000 jobs in July, with positive revisions to previous months.
•     The Unemployment Rate for July fell back to 3.9 percent.
•     Average Hourly Earnings increased by 0.3 percent in July.
•     The Average Workweek in July eased to 34.5 hours.

The headline number for July payroll job growth, +157,000, was a little below expectations, but the overall jobs report was certainly not bad. Earlier this week the ADP Jobs Report showed a gain of 219,000 private sector jobs, and that increased expectations for this morning’s headline number. The good news in today’s official Bureau of Labor Statistics job count was the positive revision of 59,000 more jobs over May and June. If we add the revision for May and June to the July total gain, that puts us up 216,000 jobs from last month’s estimate. The U.S. unemployment rate ticked back down to 3.9 percent in July, after increasing to 4.0 percent last month.  We view the June increase in the unemployment rate as anomalous, so the dip in the July unemployment rate just puts us back in the appropriate range for this economy. Average hourly earnings were up 0.3 percent for the month, warm but not hot. Over the last year, average hourly earnings were up 2.7 percent. The Consumer Price Index increased by 2.8 percent over the twelve months ending in June, so most workers are not seeing real gains. The average workweek decreased by 0.1 hours to 34.5. The moderate, but less-than-expected, gain in July payrolls would be a win at any point in the business cycle. It should not deter the Federal Reserve from executing their expected fed funds rate hike on September 26. The Fed will see one more jobs report, for August, before the next FOMC meeting.

Mining and logging industries shed 4,000 jobs in July. Construction paved the way for 19,000 net new jobs.  Manufacturing industries built 37,000 net new jobs, a strong monthly gain. Wholesale trade gained 12,300 new jobs in July. Retail trade added 7,100. Employment in transportation and warehousing eased by 1,300 jobs, including a nearly 15,000 job loss for transit and ground passenger transportation. Information industries held their employment unchanged for the month. Financial services gave up 5,000 jobs on net. Professional and business services employment was up a solid 51,000. Education and healthcare added 22,000 workers. Leisure and hospitality served up 40,000 new jobs. The government sector dropped 13,000 jobs in July. Seasonal adjustment factors for local government can get squirrelly this time of year.

Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is down to 2.97 percent. NYMEX crude oil is down to $68.87/barrel. Natural gas futures are up to $2.85/mmbtu.

For a PDF version of this report, click here: July 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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July 2018 ADP Jobs, ISM MF Index, Mortgage Apps, June Construction

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

Another Solid Labor Market Indicator

•     The July ADP Employment Report shows an increase of 219,000 private sector jobs.
•     The ISM Manufacturing Index for July eased to 58.1, still indicating improving conditions.
•     Mortgage Applications fell by 2.6 percent for the week ending July 27.
•     Construction Spending dipped by 1.1 percent in June.

Job growth was solid again in July according to the ADP National Employment Report. According to ADP, 219,000 private-sector jobs were added in July. Small businesses (less than 50 employees) hired a net of 52,000 employees. Medium-sized businesses (50-499 employees) increased payrolls by 119,000. Large businesses gained 48,000 for the month. Service industries added 177,000 workers. Manufacturing employment was up by a strong 23,000. Construction employment increased by 17,000. Natural resources/mining added 3,000 workers on net. This was another good jobs report with no signs of weakness. We have seen numerous recent anecdotal reports saying that trade tariffs are weighing on hiring in some businesses, but that effect is not showing up in the ADP numbers. Today’s ADP report for July reinforces expectations of another good payroll number in the official Bureau of Labor Statistics data for July that will be published Friday morning. We have bumped our estimate of July payroll gains up to 200,000 for the month, with an unemployment rate back down to 3.8 percent.

The ISM Manufacturing Index dropped just over two points in July, from a robust 60.2, back to a still-strong 58.1, indicating ongoing expansive conditions for U.S. manufacturers. The new orders, production and employment sub-indexes were all firmly in expansion territory. The inventories sub-index increased to 53.3, consistent with our expectation that inventory growth will be a positive for Q3 GDP. Most commodities were reported to be up in price, including aluminum and steel. Only copper was reported to be cheaper in July. Seventeen out of eighteen industries reported growth in July. Primary metals reported contraction. Anecdotal comments focused on higher prices and the potential for weaker demand due to tariffs. Of note was one comment focusing on capacity constraints. We have previously reported that overall capacity utilization is approaching a cyclical high.

Total mortgage applications declined by 2.6 percent for the week ending July 27. The purchase apps data is not showing a clear trend in either direction, but that is consistent with home sales data, which is also not showing a clear trend. Purchase apps fell by 3.2 percent, their third consecutive weekly decline. Refi apps lost 1.7 percent after gaining slightly in the previous week. On a four-week moving average basis, purchase apps are still up by 3.0 percent over their year-ago level. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage increased to 4.84 percent.

Construction spending eased by 1.1 percent in June. Private residential construction spending was off by 0.5 percent. Private nonresidential eased by 0.3 percent. Public spending fell 3.5 percent as spending on education-related projects cooled.

Market Reaction: U.S. equity markets opened with gains. The yield on 10-Year T-bonds is up to 3.00 percent. NYMEX crude oil is down to $67.67/barrel. Natural gas futures are down to $2.76/mmbtu.

For a PDF version of this report, click here: July 2018 ADP Jobs, ISM MF Index, Mortgage Apps, June 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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June 2018 Income & Spending, Consumer Confidence, May House Prices

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

Major Revision to Saving Rate Paints a Different Picture for Consumers

•     U.S. Nominal Personal Income increased by 0.4 percent in June.
•     After inflation and taxes, Real Disposable Income was up by 0.3 percent.
•     Real Consumer Spending increased by 0.3 percent in June.
•     The Personal Consumption Expenditure Price Index gained 0.1 percent in June.
•     Consumer Confidence dipped in June, but remained in its recent high range.
•     The Case-Shiller U.S. National House Price Index was up 6.4 percent in May, over the prior year.
•     The Employment Cost Index increased by 0.6 percent over the second quarter.

The June income and spending data was already incorporated in the Q2 GDP report, but today we can see the monthly detail. As part of the revision to the GDP data that was released with the initial estimate of Q2 GDP, U.S. income and spending data has also been revised. With the revision to income and spending data we see a major revision to the personal saving rate, which changes the story about U.S. consumers. Prior to the recent GDP revision, the personal saving rate was shown to be steadily declining through 2015 and 2016, to near 2 percent by mid-2018. That trend implied that consumers generally were starting to get over extended, and would have to rely increasingly on credit to support spending. The pre-revision trend also looked alarmingly like the dip to a minimal saving rate that we saw prior to the Great Recession. What we see now instead is a fairly flat saving rate, hovering around 7 percent since 2013. The June data shows a saving rate of 6.8 percent. This implies that consumers are not over-extended, and they can keep spending without setting up a debt overhang-correction cycle. This is supportive of an ongoing economic expansion.

Wages and salaries increased by 0.4 percent in June. Dividend income was strong, gaining 1.2 percent for the second consecutive month. After adjusting for inflation and taxes, real disposable income was up by 0.3 percent, the strongest gain since last March. Inflation was sedate, with the Personal Consumption Expenditure (PCE) Price Index up by just 0.1 percent. Real consumer spending increased by 0.3 percent in June, as it did in May.

U.S. consumer confidence fell in June according to the Conference Board. The series remains at a cyclical high, above where it was in the mid-2000s, but still below the high from the late 1990s.

The Case-Shiller U.S. National House Price Index was up by 0.4 percent for the month in May, gaining 6.4 percent over the previous 12 months. Most of the 20 cities tracked showed monthly price increases. However, Detroit house prices eased by 0.2 percent in May, and New York slipped by 0.3 percent. Western cities still show stronger gains. Seattle topped the 20-city list, increasing by 1.4 percent in May. Seattle, San Francisco and Las Vegas are all showing low double-digit gains over the last year.

The Employment Cost Index was up a moderate 0.6 percent over the second quarter. Civilian wages were up by 2.8 percent over the year ending in June. Benefit costs were up by 2.9 percent over the year. Stronger productivity growth in Q2 will help employers absorb the added costs without pushing up their prices (broadly speaking).

We expect the Federal Reserve to keep interest rates unchanged at the conclusion of the Federal Open Market Committee meeting tomorrow.

Market Reaction: U.S. equity markets opened with gains. The yield on the 10-year Treasury bond is down to 2.96 percent. NYMEX crude is down to $68.61/barrel. Natural gas futures are up to $2.83/mmbtu.

For a PDF version of this report, click here: June2018Income&Spending,ConsumerConfidence,MayHousePrices

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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2018Q2 GDP

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

Strong GDP Growth in Q2

•Real Gross Domestic Product for 2018Q2 increased at a 4.1 percent annualized rate.

Real gross domestic product increased at a 4.1 percent annualized rate in the second quarter, about where we expected. The Bureau of Economic Analysis released the Q2 GDP data this morning, along with a comprehensive revision of historical GDP and its components, going back to 1929. As part of the comprehensive revision, the base year for real (inflation adjusted) GDP has been changed from 2009 to 2012. [We will discuss the historical changes to GDP in the next section.] In the second quarter, consumers did their part, increasing real spending at a 4.0 percent annual rate, after a nearly flat first quarter. This is the strongest acceleration in consumer spending since the end of 2014. Business investment was solid, increasing at a 7.3 percent annualized rate in Q2, after a strong 11.5 percent gain in Q1. Business investment in structures, including new drilling for oil wells, increased at a 13.3 percent annualized rate in Q2, almost matching the Q1 acceleration. Surprisingly, real inventories were a drag in Q2, declining by $6 billion ($ 2012) and subtracting a full percentage point off of headline GDP growth. Real exports accelerated in Q2, growing at a very strong 9.2 percent annual rate while imports bumped up at a 0.5 percent annual rate. Net trade added 1.1 percent to real GDP growth in Q2. Total government spending increased at a 2.1 percent annual rate in Q2, driven by a strong 5.5 percent gain in federal defense spending. The surprising drop in inventories in Q2 suggests that inventories could swing to the positive in Q3, boosting GDP growth in the current quarter. We recommend viewing GDP growth as a moving average process. We had 2.3 percent real GDP growth in 2017Q4, 2.2 percent in 2018Q1 and now 4.1 percent in 2018Q2, suggesting that an underlying growth rate of about 2.8 percent is about right for this economy.

The deep revision to historical GDP resulted in only very small changes to GDP growth rates around the Great Recession. The quarter-to-quarter pattern is nearly identical. The weakest quarter of the Great Recession is still 2008Q4. Previously, the BEA reported a -8.2 percent annualized real GDP growth rate for that quarter, now it shows -8.4 percent. For the year 2017, the BEA previously reported real GDP growing by 2.3 percent, now it shows 2.2 percent. Market Reaction: U.S. equity markets opened with losses.

The 10-year Treasury bond yield is down to 2.96 percent. NYMEX crude oil is down to $67.60/barrel. Natural gas futures are up to $2.79/mmbtu.

For a PDF Version of this report, click here: 2018Q2 GDP

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

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June 2018 Durable Goods, Advance Indicators, July UI Claims, ECB

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

Data Shows Good U.S. Momentum at the End of Q2 and Early into Q3

  • New Orders for Durable Goods increased by 1.0 percent in June.
  • The Advance Estimate of International Trade in Goods showed a widening trade gap, weighing on Q2 GDP.
  • Initial Claims for Unemployment Insurance gained 9,000, to hit 217,000 for the week ending July 21.
  • The European Central Bank left their key policy rates unchanged at today’s meeting.

New orders for durable goods increased by 1.0 percent in June after easing through April and May. Most categories were positive for the month. However, new orders for computers dropped by 4.1 percent in June after a small loss in May. Year-to-date, new orders are up 8.4 percent without adjusting for inflation. Core new orders, nondefense capital goods excluding aircraft, gained 0.6 percent for the month, and were up 7.8 percent year-to-date over the same period last year. Shipments were good in June, up 1.7 percent, supportive of second quarter GDP. We will get the first estimate of Q2 real GDP growth tomorrow morning. We expect to see strong Q2 real GDP growth of about 4.0 percent.

The advance international trade data for June shows a $2.2 billion dip in goods exports. Imports of goods gained $1.3 billion, widening the trade deficit in goods to $68.3 billion in June. The June trade data potentially shaves a little off of Q2 GDP. 

Initial claims for unemployment insurance increased by 9,000 for the week ending July 21, to hit 217,000. This is still a very low number, indicating tight labor market conditions. Continuing claims for the week ending July 14 fell by 8,000, to hit 1,745,000, also a very low number. 

The European Central Bank Governing Council left the stance of monetary policy unchanged at the meeting ending July 26. ECB President, Mario Draghi, reiterated the central bank’s commitment to winding down its net new asset purchases by the end of 2018. Maturing existing assets will be reinvested for “a period of time” thereafter. Policy rates are expected to remain at current levels through the summer of 2019. Mario Draghi’s term is up at the end of October 2019.

Market Reaction: U.S. equity markets open mixed. The 10-Year T-bond yield is down to 2.95 percent. NYMEX crude oil is down to $69.28/barrel. Natural gas futures are down to $2.75/mmbtu.        

For a PDF version of this report, click here: June 2018 Durable Goods

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

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June 2018 New and Existing Home Sales, July Mortgage Apps

July 25, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

 

Housing Market Sags into Summer

•   New Home Sales decreased by 5.3 percent in June, to a 631,000 unit annual rate.
•   Existing Home Sales decreased by 0.6 percent in June, to a 5,380,000 unit annual rate. 
•   Mortgage Applications eased by 0.2 percent for the week ending July 20.

Both existing and new home sales sagged in June, pointing to a cooler residential real estate market in a hot summer. Higher land prices, lumber prices, labor costs and mortgage rates are all working to reduce housing affordability. Added to that, tax reform may be working against some markets. We still view tax reform as a positive for the national economy, but the regional component of tax reform may be influencing both buyer and seller behavior on the West Coast. That said, markets in the Northeast improved in June.

New home sales fell by 5.3 percent, to a 631,000 unit annual rate in June. This was the weakest seasonally adjusted sales rate this year, and the weakest since October 2017. The Northeast saw big gains, up 36.8 percent for the month. The Midwest lost 13.4 percent. The South was down 7.7 percent, and the West saw its third consecutive monthly decline, down 5.2 percent in June. The months’ supply of new homes ticked up to 5.7 months’ worth. This should help new home sales for the rest of the summer. The median sales price of a new house in June was down 4.2 percent over the previous 12 months, not accounting for size differences in the mix of houses sold. 

Existing home sales eased by 0.6 percent in June, to a 5,380,00 unit annual rate. This was a just a small drop in June but it was the third consecutive monthly decline. Sales in the Northeast gained 5.9 percent. Midwest sales were little changed, up 0.8 percent for the month. The South lost 2.2 percent in its fourth consecutive monthly decline. The West lost 2.6 percent, also its fourth consecutive monthly decline. The inventory of existing homes for sale notched up to a still-tight 4.3 months’ worth in June. The median sales price of an existing home was up by 5.2 percent in June over the previous 12 months. 

Mortgage applications eased by 0.2 percent for the week ending July 20. Purchase apps lost 1.0 percent while refi apps gained 0.9 percent. Purchase apps bounced back in early July but have since given back the gains, giving us no clear trend for the month. Purchase apps are still up 2.3 percent over a year ago on a four-week moving average basis. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage remained at 4.77 percent. 

Market Reaction: U.S. equity markets opened with gains. The 10-year Treasury bond yield is down to 2.95 percent. NYMEX crude oil is up to $69.24/barrel. Natural gas futures are up to $2.75/mmbtu.

For a PDF version of this report, click here: June 2018 New and 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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June 2018 Housing Starts, July Mortgage Apps

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

Deconstructing Home Construction Data

  •  Housing Starts decreased by 12.3 percent in June to a 1,173,000 unit annual rate.
  •  Housing Permits decreased by 2.2 percent in June to a 1,273,000 unit annual rate.
  •  Mortgage Applications fell by 2.5 percent for the week ending July 13.

Residential construction activity cooled significantly in June. Total housing starts dropped by 12.3 percent, to a 1,173,000 unit annual rate. Both single-family and multifamily starts were weak. Single-family starts fell by 9.1 percent, to an 858,000 unit annual rate, the weakest rate of single-family construction since last September. Multifamily starts plunged nearly 20 percent, to a 315,000 unit rate, the weakest since August of last year. We do not have a good explanation for this yet. One view is that housing starts may have been overstated in recent months, and corrected in June. Another view is that the June data is somehow anomalous, and we will see a rebound in July. It is important to remember that one data point does not make a trend. Consumer fundamentals are good, supportive of the housing sector. However,higher mortgage rates and declining affordability are headwinds. New home sales are still on an uptrend through May. If that continues then single-family construction will quickly get back on track. Total residential building permits for new construction fell by 2.2 percent in June. Single-family permits increased by 0.8 percent, to an 850,000 unit annual rate. Multifamily permits fell by 7.6 percent, to a 423,000 unit rate. The gap between multifamily permits and multifamily starts tends to be cyclical. A big gap is loosely associated with a plateau in construction activity, followed by a reset.Single-family permits increased by 0.8 percent, to an 850,000 unit annual rate. Multifamily permits fell by 7.6 percent, to a 423,000 unit rate. The gap between multifamily permits and multifamily starts tends to be cyclical.A big gap is loosely associated with a plateau in construction activity, followed by a reset.Single-family permits increased by 0.8 percent, to an 850,000 unit annual rate. Multifamily permits fell by 7.6 percent, to a 423,000 unit rate. The gap between multifamily permits and multifamily starts tends to be cyclical. A big gap is loosely associated with a plateau in construction activity, followed by a reset.

Mortgage applications dipped in mid-July. The composite index was down by 2.5 percent for the week ending July 13, reversing a similar gain the week before. Purchase apps were off by 5.2 percent, while refi apps gained 2.2 percent. The four-week moving average for purchase apps was 2.1 percent above its year-ago level. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage ticked up to 4.77 percent. The lack of a clear trend in mortgage apps for purchase this year suggests the same for the housing market generally.

Market Reaction: Stock indexes opened with losses. The yield on 10-year Treasury bonds is down to 2.86 percent. NYMEX crude oil is down to $67.44/barrel. Natural gas futures are down to $2.70/mmbtu.


For a PDF version of this report, click here: June 2018 Housing Starts


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

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June 2018 Industrial Production, July NAHB Index, Fedspeak

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

Manufacturing Output Increased in June, Builders Optimism High

•     Industrial Production increased by 0.6 percent in June.

Total industrial production increased by 0.6 percent in June. Manufacturing output increased by 0.8 percent for the month, with a bounce-back in motor vehicle output. Motor vehicle and parts production increased by 7.8 percent in June, after falling by 8.6 percent in May. Early-to-mid summer is always a tricky time for seasonal adjustment factors for the auto industry as regular summertime plant closures may vary a few weeks earlier or later. This year, a problem at a parts supplier constrained vehicle assemblies in May. Vehicle assemblies in June bounced back by 9.4 percent, to an 11.25 million unit annual rate. Nondurable manufacturing was generally more sedate, with the category increasing production by just 0.1 percent in June. Mining output increased by 1.2 in June, its fifth consecutive strong monthly gain, consistent with the upward trend in oil prices this year. Just in the last week, oil prices eased again, but we expect global supply to remain tight this year, keeping prices high enough to motivate increasing oil field activity. Utility output fell by 1.5 percent in June. We expect utility output to bounce back this month as the early July heat wave on the East Coast boosted demand for air conditioning. Overall capacity utilization is again approaching the cyclical highs from mid-2014. We expect tight capacity and higher import prices to keep price pressure warm in the manufacturing sector for the remainder of this year.

According to the National Association of Home Builders, builder confidence was little changed in early July. The Builder Confidence Index remained at 68, matching the strong 2017 average.

Federal Reserve Chairman Jay Powell began his semiannual congressional testimony this morning. His prepared testimony was as expected. He said that U.S. economic growth has been solid this year and the job market has been strong. Powell sited job growth, rising after-tax incomes, household optimism, business investment and rest-of-world growth as positives for the U.S. economy. Recent data on inflation is encouraging, according to Powell, with core inflation at 2.0 percent for the year ending in May. Looking ahead, Powell expects interest rates and financial conditions to remain favorable to growth. He views the financial system as stronger and well position to supply credit. Fiscal policy will continue to support growth according to Powell. Finally, he believes that rest-of-world growth will continue to be a positive for the U.S. Powell expects the Fed to keep gradually increasing the fed funds rate. According to the CME Group, the implied odds of a fourth rate hike this December are now up to about 60 percent.

Market Reaction: Equity markets opened with gains. The yield on 10-Year Treasury bonds is up to 2.87 percent. NYMEX crude oil is down to $67.43/barrel. Natural gas futures are down to $2.72/mmbtu.

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