April 2019 Housing Starts, May UI Claims

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

Single-Family Starts Improve, Following New Home Sales Up

*     Housing Starts increased by 5.7 percent in April to a 1,235,000 unit annual rate.
*     Housing Permits inched up by 0.6 percent in April to a 1,296,000 unit annual rate.
*     Initial Claims for Unemployment Insurance for the week ending May 11 fell by 16,000 to hit 212,000.

Housing starts improved by more than expected in April, increasing by 5.7 percent to a 1,235,000 unit annual rate. Single-family starts improved, gaining 6.2 percent to an 854,000 unit rate. This is still well below the 966,000 unit rate from January, but it represents the second consecutive monthly gain for that category. Single-family starts look like they are following the improving trend in new home sales this year, which were boosted by declining mortgage rates. The rate for a 30-year fixed-rate mortgage declined significantly, from a high of 5.17 percent in early November 2018, down to 4.36 percent by late March 2019 according to the Mortgage Bankers Association. That push may soon run its course. Since late March, mortgage rates have stabilized at around 4.45 percent. Multifamily starts improved for the third consecutive month, up by 4.7 percent in April to a 381,000 unit rate. Both series look like they are past their peak unit rates. Single-family starts likely peaked in this cycle in early 2018, near a 900,000 unit rate. Multifamily starts look like they peaked from late 2015 through early 2017 at about a 400,000 unit rate. Total permits for new residential construction were little changed in April, inching up by 0.6 percent to a 1,296,000 unit rate. Single-family permits fell by 4.2 percent to a 782,000 unit rate, continuing the downtrend visible since last December. Multifamily permits gained 8.9 percent, reaching a 514,000 unit rate. The relationship between single-family permits and single-family starts remains fairly tight. However, the gap between multifamily permits and multifamily starts appears to be gradually widening. The wider gap is visible through 2017 and 2018. This could be a function of data collection. It could also indicate that there is some potential for an increase in multifamily construction that would narrow the gap between permits and starts back to historical norms.

Initial claims for unemployment insurance fell by 16,000 for the week ending May 11 to hit 212,000. This is near the low average for the last 12 months. Continuing claims fell by 28,000 for the week ending May 4 to hit a very low 1,660,000.

The continued very low unemployment insurance claims this spring speak to the strength of the U.S. economy. A strong labor market, supporting healthy consumer spending, is a stabilizing force for the economy. Even though other U.S. data has been choppy since late last year, labor-related data has remained firm for the most part. We believe that this stabilizing force will be a dominant characteristic of the U.S. economy this year.

Market Reaction: Stock indexes opened with gains. The yield on 10-year Treasury bonds is up to 2.41 percent. NYMEX crude oil is up to $63.47/barrel. Natural gas futures are up to $2.64/mmbtu.

For a PDF version of this report, click here: April 2019 Housing Starts, May 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.

Read More

April 2019 Retail Sales

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

Auto Sales Cooled in April

•    Retail Sales decreased by 0.2 percent in April and are up 3.1 percent over the previous year.
•    Industrial Production declined by 0.5 percent in April as manufacturing output dropped.
•    Mortgage Applications eased by 0.6 percent for the week ending May 10.

April was another weak month for retail sales. The pattern in month-to-month changes in nominal retail sales has been a zig-zag lately. December was weak. January was strong. February was weak. March was very strong. Now April is weak again. Some of the pattern is due to rising gasoline prices over the past few months. Some is due to a gradual declining pattern in auto sales. But there is another broad weight on shoppers. After posting strong year-over-year gains through 2018, yearly growth in nominal retail sales is looking softer in 2019. This coincides with a step down in consumer confidence that began in December. We expect the recent rupture in the U.S./China trade talks, and the associated increase in tariffs on both sides, to have a negative impact on consumer confidence for May and this could be another weight on consumer spending in the second quarter. Nominal retail sales decreased by 0.2 percent in April. Motor vehicle and parts sales declined by 1.1 percent for the month. Estimated unit auto sales fell noticeably from a 17.5 million unit rate in March, to 16.4 million in April. Retail sales ex-auto inched up by 0.1 percent in April. Higher gasoline prices in April helped, boosting service station sales by 1.8 percent for the month. Other categories were mixed. Building materials sales dropped by 1.9 percent. Department store sales gained 0.7 percent in April.

U.S. industrial production declined by 0.5 percent in April. The biggest component, manufacturing, was also down by 0.5 percent. Manufacturing output has now been flat to down for the last four months. The above-mentioned pattern in auto sales is keeping a lid on auto production. Total vehicle assemblies eased to a 10.58 million unit annual rate in April, the lowest rate since May 2018. Production in aerospace transportation equipment also declined in April. We cannot say that that is directly attributable to Boeing’s problems with the 737 Max, but it may be a significant factor for that industry segment in the months to come. Output in mining increased by 1.6 percent in April, reversing a three-month slide. Utility output dropped by 3.5 percent in April. Overall capacity utilization eased to 77.9 percent in April. Capacity utilization looks like it is past its peak for this cycle, which may prove to be the 79.6 percent from last November.

Total mortgage applications eased by 0.6 percent for the week ending May 10. Purchase apps decreased by 0.6 percent after a stronger gain the week before. Refi apps fell by 0.5 percent after a moderate gain the week before. On a four-week moving average basis, refi apps are still up 13.3 percent over the past 12 months. Purchase apps are up 3.6 percent over the year. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage ticked down to 4.40 percent.

Market Reaction: Equity markets are gaining at mid-day. The 10-year Treasury yield is down to 2.38 percent. NYMEX crude oil is up to $62.01/barrel. Natural gas futures are down to $2.61/mmbtu.

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

Read More

April 2019 U.S. Employment, ISM Non-MF, Q1 Productivity

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

Strong Job Growth in April

*     Payroll Employment increased by a strong 263,000 jobs in April.
*     The Unemployment Rate for April fell to 3.6 percent.
*     The ISM Non-Manufacturing Index for April decreased to 55.5.
*     U.S. Productivity Growth increased to a strong 3.6 percent in the first quarter of 2019.

The February lull in job growth, now reported at +56,000 for the month, is behind us with two months of solid job gains since then. March payroll job growth has been revised to +189,000. Payroll job growth in April was stronger than expected, with a net gain of 263,000 jobs. The unemployment rate fell to 3.6 percent due to a large 490,000 worker drop in the labor force. The April unemployment rate is the lowest since December 1969. Average hourly earnings were up 6 cents, or 0.2 percent for the month. Over the last year, average hourly earnings are up by 3.2 percent. Strong employment growth counterweights cooler-than-expected inflation data in the Federal Reserve’s monetary policy calculation.

Manufacturing industries added a net 4,000 jobs in April. Mining and logging subtracted 3,000. Construction employment was up a strong 33,000 net new jobs for the month. Wholesale trade employment increased by 9,900 jobs. Retail trade continues to restructure, dropping 12,000 jobs in April. Employment in transportation and warehousing increased by 11,100 jobs. Information services subtracted 1,000 jobs in April. Financial activities added 12,000. Professional and business services added a strong 76,000 net new jobs in April. Education and healthcare employment increased by 62,000 jobs. The leisure and hospitality sector gained 34,000 jobs for the month. Government employment increased by a very strong 27,000 in April.

The ISM Non-Manufacturing Index for April declined to 55.5, down from 56.1 in March. This is well below the September peak of 60.8. All 10 sub-indexes remained in positive territory, consistent with a moderate economic expansion in early Q2. All 15 non-manufacturing industries reported growth in April including professional, scientific and technical services, health care, mining and educational services. Anecdotal comments included concerns about labor shortages in the health care industry, price pressures coming from rising minimum wages and price pressures on some food products.

Nonfarm business productivity increased at a strong 3.6 percent annual rate in the first quarter of 2019. This is the strongest gain in output per hour per employee since 2014Q3. Productivity growth has been weak by historical standards through the current economic expansion. Weak productivity growth means that wage increases have more inflationary potential, and this has kept the Fed focused on wage gains and the potential for inflation.

Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is up to 2.54 percent. NYMEX crude oil is up to $62.34/barrel. Natural gas futures are down to $2.56/mmbtu.

For a PDF version of this report, click here: April 2019 U.S. Employment, ISM Non-MF, Q1 Productivity

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.

Read More

April 2019 ADP Jobs,ISM-MF, Mortgage Apps, March Construction Spending

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

Jobs Numbers Still Looking Good, Other Indicators Mixed

*     The ADP Employment Report for April showed an increase of 275,000 private sector jobs.
*     The ISM Non-Manufacturing Index for April eased to a still-positive 52.8 percent.
*     Construction Spending for March decreased by 0.9 percent.
*     Mortgage Applications fell for the fourth week in late April.

Labor market indicators continue to look solid after the weak February payroll gain of just 33,000 net new jobs. According to ADP, a strong 275,000 private sector jobs were added to the U.S. economy in April. This increases expectations for the official Bureau of Labor Statistics data for April due out Friday morning. According to ADP, small businesses (less than 50 employees) added 77,000 jobs in April. Medium sized businesses (50-499 employees) had a strong month adding 145,000 net new jobs. Large businesses added 53,000. Construction companies staffed up, increasing employment by a sizeable 49,000. Manufacturing added 5,000. Professional and business services had a strong month with employment up by 59,000. Education and healthcare employment increased by 54,000. It was a solid report consistent with ongoing momentum in the U.S. economy heading into the summer.

The ISM Manufacturing Index eased in April to a still-positive 52.8 percent, down from 55.3 in March. This was a mixed report for the manufacturing sector and should be taken as a cautionary signal, especially in light of Boeing’s recent problems. More bad news at Boeing could exert more drag on the ISM-MF Index. Seven out of ten sub-indexes were positive in April, including new orders, production and employment, but all three of those categories saw slowing activity. New orders fell from a strong 57.4 in March to 51.7 in April, still positive but close to the break-even 50 mark. The sub-indexes for customers inventories, new export orders and imports were all below 50. Thirteen out of eighteen industries reported expansion in April. The five industries reporting contraction were apparel, leather and allied products, primary metals, wood products, petroleum and transportation equipment (likely impacted by Boeing). Anecdotal comments were mostly positive, some cited concerns about the U.S.-Mexico border situation.

Total construction spending in March fell by 0.9 percent, weighed down by a 1.8 percent monthly decline in spending on private residential projects. Spending on private nonresidential projects increased by 0.5 percent. Total public construction was off by 1.3 percent despite a reported surge in state and local government spending in the first quarter GDP data.

Total mortgage applications fell for the fourth consecutive time in the week ending April 26, following a strong run through March. Purchase apps were down by 3.7 percent for the week, after losing 4.1 percent the week before. Refi apps were down by 5.0 percent for the week, their fourth consecutive weekly decline. On a four-week moving-average basis, refi apps are still up by 23.2 percent from a year ago. Purchase apps are up 5.6 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage eased to 4.42 percent at the end of April, still above the late-March low of 4.36 percent.

Market Reaction: U.S. equity markets opened with gains. The yield on 10-Year T-bonds is down to 2.47 percent. NYMEX crude oil is down to $63.05/barrel. Natural gas futures are up to $2.61/mmbtu.

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

Read More

March 2019 Durable Goods, April UI Claims

April 25, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

New Orders Strengthen in March, but Q1 Looks Soft

•    New Orders for Durable Goods increased by 2.7 percent in March.
•    Initial Claims for Unemployment Insurance gained 37,000, to hit 230,000 for the week ending April 20.

New orders for durable goods increased by 2.7 percent in March after falling by 1.1 percent in February. This leading indicator for the manufacturing sector is notoriously volatile, often swung by very lumpy defense and commercial aircraft orders. Canceled orders at Boeing will likely add to the volatility of commercial aircraft orders this spring. The core measure of new orders, nondefense capital goods excluding aircraft, also increased in March, gaining 1.3 percent. Over the 12 months ending in March, core new orders are up 5.3 percent. The associated shipments data has a more direct impact on GDP. Shipments of durable goods were fairly soft in the first quarter, gaining 0.3 percent in March and 0.3 percent in February, after declining by 0.5 percent in January. The soft shipments data for Q1 adds to our concern about a weak Q1 GDP print.

After showing a declining trend through late March and into early April, initial claims for unemployment insurance jumped by 37,000 for the week ending April 20. This brought initial claims up to a still-low 230,000 for the week. The seasonal adjustment factors for initial claims are volatile this time of year because of the variable timing of the Easter holiday, so we will discount the one-week surge. Continuing claims for the week ending April 13 inched up by just 1,000 to hit 1,655,000, a very low number for that series.

Market Reaction: U.S. equity markets opened with losses. The 10-Year T-bond yield is little changed at 2.52 percent. NYMEX crude oil is down to $65.73/barrel. Natural gas futures are down to $2.48/mmbtu.

For a PDF version of this report, click here: March 2019 Durable Goods, April UI Claims

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

Read More

March 2019 New and Existing Home Sales

April 23, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Home Sales Zig and Zag in March

•New Home Sales increased by 4.5 percent in March, to a 692,000 unit annual rate.
•Existing Home Sales fell by 4.9 percent in March, to a 5,210,000 unit annual rate.

Existing home sales fell in March, but new home sales increased. Home sales this year are being steered by several different forces. First, we can say that household financial conditions are good and the job market remains strong. Those are major positives for home sales. However, this has already been a very long cycle, so there is little pent-up demand for housing that has not already been spent out. Demographics are also playing a role. Younger households are less inclined to purchase houses than they were in previous generations, and younger households may be saddled with a lot of student debt.  Older households are retiring in large numbers and this is impacting supply and demand for certain market segments. Housing affordability was very high immediately following the Great Recession but has since declined to near its long-term average. Price appreciation has slowed, which is a positive for affordability, but also a negative in terms of the ability of new home owners to generate home equity. Mortgage rates appear to have peaked last fall and then fell through late March. However, the last two weekly data points through mid-April show slight increases in mortgage rates. Largely coincident with the drop in mortgage rates was the federal government shutdown running from late December through January. The government shutdown hurt home sales in January by delaying mortgage processing by the Federal Housing Administration, the Department of Veterans Affairs and the Department of Agriculture. It also hurt home sales by creating financial uncertainty for government workers and contractors and by reducing consumer confidence in non-government workers. The net result of all these forces was a surge in both new and existing home sales in February. 

After surging in February, existing home sales fell by 4.9 percent in March, to a 5,210,000 unit annual rate. This is still above the sales rates for December and January. Sales of existing homes declined moderately across all four census regions in March. The inventory of unsold existing homes increased to a still tight 3.9 months’ worth in March. The median price of an existing home was up by 3.8 percent in March over the previous 12 months according to the National Association of Realtors.

New home sales increased by 4.5 percent in March, to a 692,000 unit annual rate. This is the strongest monthly sales rate since November 2017. Sales of new homes increased across all four census regions in March. The months’ supply of new homes for sales fell to 6.0 in March, down from 7.4 months’ worth in December. We expect the recent surge in home sales to provide near term motivation for builders. 

Market Reaction: U.S. equity markets opened with gains. The 10-year Treasury bond yield is down to 2.57 percent. NYMEX crude oil is up to $66.23/barrel. Natural gas futures are down to $2.51/mmbtu.

For a PDF version of this report, click here:  March 2019 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.  

Read More

March 2019 Retail Sales, Leading Economic Index, April UI Claims

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

Data Looking More Positive Heading into Q2

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

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

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

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

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

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

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

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

Read More

February 2019 U.S. International Trade, April Mortgage Apps

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

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

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

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

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

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

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

For a PDF Version of this report click here: February 2019 U.S. International Trade, April Mortgage Apps

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

Read More

March 2019 Industrial Production, NAHB Index

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

Output Drifted Sideways Through Q1

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

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

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

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

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

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

Read More

March 2019 Producer Prices

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

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

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

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

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

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

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

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

Read More

March 2019 CPI

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

Energy Pushed the CPI in March, Fed Still Patient

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

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

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

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

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

For a PDF version of this report, click here: March CPI, April Mortgage Apps

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

Read More

March 2019 U.S. Employment

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

March Payrolls Rebound, Setting Up Q2 Lift

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

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

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

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

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

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

Read More

March 2019 ADP Jobs, ISM Non-MF, Mortgage Apps

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

ADP Jobs Report Below Expectations

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

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

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

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


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

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

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

Read More

February 2019 Retail Sales, ISM-MF Index, Jan. Construction Spending

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

Consumer Caution Crimped Q1 GDP

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

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

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

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

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

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

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

Read More

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

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

Housing Indicators Still Soft. Lower Rates Versus Lower Confidence.

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

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

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

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

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

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

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

Read More

February 2019 Leading Indicators, March UI Claims

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

Leading Indicators Improve in February

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

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

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

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

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

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

Read More

FOMC Policy Announcement and Supporting Materials

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

Fed Leaves Fed Funds Rate Unchanged as Expected

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

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

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

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

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

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

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

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

Read More

February PPI, CPI, Biz Confidence, March Mortgage Apps

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

Higher Energy Prices in February Countered by Price Cuts Elsewhere

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

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

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

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

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

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

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

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

 

Read More

February 2019 U.S. Employment

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

The Clunk Heard Around the World

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

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

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

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

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

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

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

Read More

Feb. 2019 ISM Non-Manufacturing and Manufacturing Indexes

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

U.S. Service Sector Index Rebounds Strongly

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

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

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

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

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

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

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

Read More

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

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

Housing Indicators Sag at Year End

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

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

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

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

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

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

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

Read More

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

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

Government Shutdown a Consistent Theme in Soft January Data

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

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

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

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

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

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

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

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

Read More

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

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

Retail Sales Slump at Year End

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

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

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

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

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

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

Read More

January Consumer Price Index, February Mortgage Apps

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

Consumer Prices Stay Cool, Despite Warmer Headlines

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

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

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

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

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

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

Read More

January NFIB Small Biz Survey, December JOLTS

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

Small Businesses Optimism is Slipping

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

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

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

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

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

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

Read More

January 2019 ISM Non-Manufacturing Index

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

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

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

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

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

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

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

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

Read More

January 2019 U.S. Employment

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

A Very Muddy Jobs Report Should be Discounted

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

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

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

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

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

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

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

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

Read More

January 2019 ADP Jobs

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

Solid ADP Report Heading into Shakier BLS Data

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

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

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

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

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

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

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

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

Read More

December Leading Indicators, January UI Claims

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

Leading Economic Index Moves Down, with an Asterisk*

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

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

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

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

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

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

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

Read More

December 2018 Existing Home Sales

January 22, 2019 by December 2018 Existing Home Sales

Home Sales Still Weak Despite Lower Mortgage Rates

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

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

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

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

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

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



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

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

Read More