June 2019 Housing Starts, July Mortgage Apps

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

Residential Construction Trends Sideways Despite Lower Mortgage Rates

*     Housing Starts eased by 0.9 percent in June, to a 1,253,000 unit annual rate.
*     Housing Permits fell by 6.1 in June, to a 1,220,000 unit annual rate.
*     Mortgage Applications dipped by 1.1 percent for the week ending July 12.

Total housing starts in June were down slightly, dropping by 0.9 percent, and are still within the range seen over the last 12 months. Single-family starts increased by 3.5 percent, to an 847,000 unit annual rate. The overall trend for single-family starts still looks slightly down since late 2017. The recent peak for single-family starts came in January of this year at a 966,000 unit annual rate. Multifamily starts fell by 9.2 percent for the month to a 406,000 unit annual rate. This is well within the range established in early 2015. So we have seen no momentum in multifamily construction over the past four and a half years. Total permits dropped by 6.1 in June to a 1,220,000 unit annual rate. Single-family permits inched up by 0.4 percent, reaching an 813,000 unit rate. Multifamily permits fell by 16.8 percent in June, to a 407,000 annual rate. The decline in home mortgage rates this spring has not pulled the market out of the doldrums. At best we can say that the market would likely be a little softer without lower mortgage rates. We expect that there has been some opportunistic buying that might not otherwise have occurred. For now, housing remains absent from the U.S. growth story.

Total mortgage application decreased by 1.1 percent for the week ending July 12. Purchase apps dipped by 3.8 percent after gaining through the previous two weeks. Refi apps notched up by 1.5 percent after falling through the previous two weeks. On a four-week moving average basis purchase apps are up 7.7 percent from this time last year. Refi apps are up 89.9 percent over the year. According to the Mortgage Bankers Association the rate for a 30-year fixed rate mortgage increased to 4.12 percent.

Market Reaction: Stock indexes opened with losses. The yield on 10-year Treasury bonds is down to 2.08 percent. NYMEX crude oil is up to $57.88/barrel. Natural gas futures are up to $2.33/mmbtu.

For a PDF version of this report, please click here: June 2019 Housing Starts, July Mortgage Apps

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

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June 2019 Retail Sales, Industrial Production

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

Shoppers Did What They Do Best

*     Retail Sales increased by 0.4 percent in June and are up 3.4 percent over the previous year.
*     Industrial Production was unchanged in June according to the Federal Reserve.

Despite the decline in consumer confidence in June, retail sales performed better than expected and increased by 0.4 percent for the month. Over the previous 12 months headline retail sales are up by 3.4 percent nominally. June data provided a good example of the difference between consumer confidence and consumer spending. Sometimes when the going gets tough, the tough go shopping. Despite increased concern about a cooler global economy and increasing downside risk factors for the U.S. economy, consumers continue to have money to spend and are spending it, providing stability for the overall U.S. economy. A strong job market, increasing homeowner equity and good consumer credit metrices are key positives for consumers and the overall U.S. economy heading into the second half of the year. The dollar value of motor vehicle and parts sales increased by 0.7 percent in June despite a marginal decrease in unit auto sales from a 17.3 million unit annual rate in May to a 17.2 million unit rate in June. Retail sales excluding auto also increased by 0.4 percent in June. With lower gasoline prices, service station sales fell by 2.8 percent for the month. Electronic store sales eased by 0.3 percent. Most other major categories were positive in June.

Overall U.S. industrial production was unchanged in June. Utility output dipped by 3.6 percent in June after increasing by 2.4 percent in May. Mining output gained 0.2 percent in June, the same as it did in May. Manufacturing output increased by 0.4 percent in June after gaining 0.2 percent in May. Capacity utilization notched up to 77.9 percent. Despite the two-month increase, manufacturing output for June is still below the peak from last December. Motor vehicle assemblies increased to an 11.63 million unit annual rate in June. Auto and light truck assemblies increased over May and June but remain well below the peak rate from June 2015. Heavy and medium truck assemblies eased over May and June but remain near their peak for this business cycle. It is fair to say that while manufacturing conditions remain good in the U.S., momentum is cooling.

Market Reaction: Equity markets opened mixed. The 10-year Treasury yield is up to 2.12 percent. NYMEX crude oil is up to $59.89/barrel. Natural gas futures are down to $2.34/mmbtu.

For a PDF version of this report, please click here: June 2019 Retail Sales, Industrial Production

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

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June CPI, July UI Claims

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

Low Inflation Reinforces Fed Rate Cut Expectations

*     The June Consumer Price Index increased by 0.1 percent, as energy prices dropped.
*     Initial Claims for Unemployment Insurance fell by 13,000 for the week ending July 6, to hit 209,000.

Declining gasoline prices kept the Consumer Price Index in check in June as it gained just 0.1 percent. Over the previous 12 months headline CPI is up by 1.6 percent, well below the Federal Reserve’s near-2-percent target. In June, gasoline prices fell by 3.6 percent for the month and this pulled the overall energy price index down by 2.3 percent. So far in July it looks like energy will be a push on the CPI. The food price sub-index was flat for the month. Excluding food and energy, core CPI was up by 0.3 percent, its strongest monthly gain since January 2018. Core prices were pushed by a jump in used car and truck prices, which were up by 1.6 percent for the month, reversing a four-month slide. Apparel prices were up by 1.1 percent in July, their first gain in four months. Over the last 12 months core CPI is up by 2.1 percent.

Initial claims for unemployment insurance fell by 13,000 for the week ending July 6, to hit 209,000. Initial claims can be volatile in the summer due to the variability of the seasonal auto assembly plant closures. Continuing claims increased by 27,000 to hit 1,694,000 for the week ending June 29.

Federal Reserve Chairman Jay Powell continues his congressional testimony today, speaking to the Senate Banking Committee. We expect no market-moving news from today’s testimony. We continue to expect to see a 25 basis point cut in the fed finds rate on July 31.

Market Reaction: U.S. equity markets opened with gains. The 10-Year Treasury bond yield is up to 2.08 percent. NYMEX crude oil is up to $60.60/barrel. Natural gas futures are up to $2.47/mmbtu.

For a PDF version of this report, please click here: June CPI, July UI Claims

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

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Fed Chair Powell Testimony and FOMC Minutes

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

Written and Verbal Comments by the Fed Set the Stage for a July 31 Rate Cut

*     Federal Reserve Chairman Jay Powell began his two day testimony to Congress today.
*     In his prepared testimony Powell noted many factors that could justify a fed funds rate cut soon.
*     The minutes of the Federal Open Market Committee meeting of June 18/19 were released today.
*     The minutes showed support within the FOMC for a fed funds rate cut soon.

This morning, Federal Reserve Chairman Jay Powell began two days of testimony before Congress. Today, he spoke to the House Committee on Financial Services. Tomorrow, Powell speaks to the Senate Banking Committee. In his prepared remarks this morning Powell listed many factors that could justify an upcoming fed funds rate cut. Powell noted a number of concerns specific to the U.S. economy: (1) inflation has been running below the FOMC’s symmetric 2 percent target, (2) inflation expectations may drop (related to #1 but forward-looking), (3) some demographic groups and some parts of the country still face economic challenges, (4) growth in business investment has slowed, (5) housing investment has declined, (6) manufacturing output has declined, (7) trade tensions remain unresolved, (8) labor force participation in the U.S. is lower than in other comparable economies, (9) boosting productivity growth should remain a high national priority, (10) the level of uncertainty has increased and (11) business confidence has declined. Also Powell noted that international economic conditions have deteriorated and there is cause for further concern about Brexit. Further, Powell said in his prepared testimony that in the last FOMC meeting, over June 18/19, that many FOMC participants saw that the case for more accommodative monetary policy has strengthened. Powell also reminded the House committee that the Fed is prepared to adjust any of the details of balance sheet normalization in light of economic and financial developments.

Powell’s prepared remarks make a strong case for a fed funds rate cute on July 31. We continue to believe that the Fed will enact a 25 basis point rate cut at the conclusion of the next FOMC policy meeting over July 30/31. It is also possible that we could see a reduction in the pace of balance sheet runoff, but we view that as less likely than a rate cut.

The minutes of the FOMC meeting of June 18/19 show that the Fed is focused on three key areas. First are the increased uncertainties in the U.S. economy due to ongoing trade conflicts. Second is the potential for further cooling in the global economy. Third is below-target inflation in the U.S. and the potential for a decline in inflation expectations. The FOMC judged that uncertainties and downside risk factors had increased significantly in the weeks before the mid-June meeting. Nearly all participants had revised their assessments of the appropriate path for the fed funds rate downward. Many participants judged that additional monetary policy accommodation (lower interest rates) would be necessary in the near term if recent developments were sustained. Several participants noted that a near term cut in the fed funds rate could help cushion the effects of future shocks to the economy and was therefore appropriate from a risk management point of view.

Market Reaction: U.S. equity prices increased after Chair Powell’s prepared remarks were released this morning. The 10-year Treasury yield dropped to 2.07 percent. NYMEX crude oil is up to $60.50 per barrel on news of lower than expected U.S. crude oil inventories. Natural gas futures are up to $2.48/mmbtu.

For a PDF version of this report, please click here: Fed Chair Powell Testimony and FOMC Minutes

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

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June 2019 U.S. Employment

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

June Job Growth Bounces Back After Weak May

•    Payroll Employment increased by 224,000 net new jobs in June.
•    The Unemployment Rate for June increased to 3.7 percent.
•    Average Hourly Earnings gained 0.2 percent in June and were up 3.1 percent for the year. 
•    The Average Workweek was unchanged at 34.4 hours. 

A net 224,000 payroll jobs were added to the U.S. economy in June, well above consensus expectations which were held in check by a weak May report. Together, April and May payrolls were revised down by 11,000 jobs. April now shows a net gain of 216,000 jobs, while May payrolls were up by just 72,000. The three-month moving average through June is +171,000 jobs per month which is still a solid number. The unemployment rate ticked up in June to 3.7 percent, back to the rate first reached in September 2018. Average hourly earnings increased by 0.2 percent for the month and are up 3.1 percent over the previous 12 months. Wages are still increasing but they are not accelerating despite the scarcity of available workers. The average workweek was unchanged in June at 34.4 hours. The labor force participation rate of 62.9 percent has been stable over the last year.

The solid June jobs report shows that the U.S. economy still has momentum even though global indicators are cooling. However, we expect the Federal Reserve to proceed with a widely-anticipated 25 basis point rate cut in the fed funds rate at the conclusion of the July 30/31 Federal Open Market Committee meeting.

Industry numbers were generally positive. Mining and logging gave up just 1,000 jobs in June. Construction added 21,000 jobs for the month, nearly the opposite of what we saw in the ADP Employment Report for June. Manufacturing increased employment by a sizeable 17,000 workers. Wholesale trade employment was little changed for the month. Retail trade shed 5,800 jobs in June. Information services added 2,000 net new jobs, as did financial services. Job growth in professional and business services was strong, with a net gain of 51,000 jobs. Education and healthcare employment was also strong, increasing by 61,000 jobs. Leisure and hospitality added 8,000 jobs in June. Government employment increased by a very strong 33,000 new jobs, most of which came from local government excluding education. 

Market Reaction: U.S. equity markets opened with losses. The 10-Year T-bond yield is up to 2.05 percent. NYMEX crude oil is up to $57.45/barrel. Natural gas futures are up to $2.39/mmbtu.



For a PDF version of this report, please click here: June 2019 U.S. Employment
The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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June 2019 ADP Jobs, ISM Non-MF

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

Slew of Data Consistent with Slower GDP Growth for Q2

•The ADP Employment Report for June showed an increase of 102,000 private sector jobs.
•The ISM Non-Manufacturing Index fell to a still-positive 55.1 in June.
•Mortgage Applications eased in late June as refi activity cooled.
•Initial Claims for Unemployment Insurance fell by 8,000 for the week ending June 29, to hit 221,000.
•The U.S. International Trade Gap widened in May to -$55.5 billion, with strong imports. 

The ADP employment report for June showed a weaker-than-expected gain of 102,000 net new private sector jobs. May numbers were revised up from +27,000 to a still-weak +41,000. Two months of tepid growth in the ADP employment survey is putting the focus on the job market heading into Friday’s official Bureau of Labor Statistics Employment Report. According to ADP, small businesses (less than 50 employees) shed a net 23,000 jobs in June. Medium-sized businesses (50-499 employees) added a solid 60,000 jobs. Large businesses added 65,000. The construction sector lost 18,000 in June. Natural resources/mining gave up 4,000. Manufacturing gained 7,000 net new jobs. Leisure/hospitality was weak, adding just 3,000 jobs in June.

The ISM Non-Manufacturing Index for June eased to a still-positive 55.1 indicating moderate ongoing expansion for the nation’s service sector. This is the weakest ISM Non-MF number since June 2017. As we see in the ISM Manufacturing Index, the ISM Non-Manufacturing Index is also trending down. In June, nine out of ten sub-indexes were positive, including business activity, new orders and employment. Imports were neutral for the month. Anecdotal comments were mixed, with concerns expressed about trade tariffs. Sixteen out of seventeen industries reported growth, only arts and entertainment reported contraction.

Initial claims for unemployment insurance fell by 8,000 for the week ending June 29, to hit 221,000. This is still a very low level, but it has been creeping up after a late-April trough. Continuing claims also dropped by 8,000 for the week ending June 22, to hit 1,686,000, also still a very low level.

The U.S. international trade gap widened in May to -$55.5 billion as imports surged. Imports increased by $8.5 billion with gains in automotive, industrial supplies and capital goods. Exports increased by $4.2 billion for the month with increases in capital goods, consumer goods and foods. Despite tariffs, the U.S. trade balance is still fighting the headwinds of a strong dollar and a cooler global economy. With two months of data, trade is looking like a small positive for Q2 GDP growth.

Total mortgage applications eased by 0.1 percent for the week ending June 28 as refi apps dipped by 1.2 percent. Purchase apps increased by 1.1. On a four-week moving average basis, refi apps were up by 90.3 percent over the previous year, fueled by lower mortgage rates. Purchase apps were up by 8.4 percent for the year. According to the Mortgage Bankers Association the rate for a 30-year fixed-rate mortgage notched up to 4.07 percent. The housing accelerator remains disengaged in this business cycle. 

Market Reaction: U.S. equity markets opened with gains. The yield on 10-Year T-bonds is down to 1.95 percent. NYMEX crude oil is up to $56.39/barrel. Natural gas futures are up to $2.27/mmbtu.



For a PDF version of this report, please click here: June 2019 ADP jobs, ISM Non-MF

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

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June 2019 ISM Manufacturing Index, May Construction Spending

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

U.S. Manufacturing is Losing Momentum as Expansion Sets New Record

•    The ISM Manufacturing Index for June fell to a still-positive 51.7 percent.
•    Construction Spending for May decreased by 0.8 percent. 

The ISM Manufacturing Index dipped to 51.7 in June, down from 52.1 in May. The June reading is still positive, but the index has been inching closer to the 50.0 break-even line after peaking at a strong 60.8 last August. We expect the index to dip below 50 soon. Even with the manufacturing sector losing momentum, the U.S. economy set a new record as the expansion entered its 121st month today. The experience of the 1990s shows that the overall U.S. economy can keep expanding even as the manufacturing sector contracts, with an ISM MF Index reading a few points below 50.

Four out of ten sub-indexes for the ISM MF Index were positive in June, including production and employment. New orders fell to neutral at 50.0 for the month. The imports sub-index was also neutral. Inventories, customers’ inventories, prices and backlog of orders were all in contraction. Twelve of eighteen industries reported expansion for the month. The five industries reporting contraction were apparel, primary metals, wood products, transportation equipment and fabricated metals. Anecdotal comments featured concern about trade tariffs for many industries. Boeing’s problems with the 737 Max are weighing on the transportation sector. Bad weather this spring has impacted agricultural-related industries and wood products.

The total value of construction put in place in May fell by 0.8 percent as all three major categories declined. Construction spending has been flat over the last 12 months, weighed down by a falling trend in the value of private residential construction. In May, private residential construction fell by 0.6 percent, with weaker single-family home construction. Private non-residential construction dropped by 0.9 percent. Public construction dipped by 0.9 percent in May.

Market Reaction: U.S. equity markets opened with gains on positive trade news. The yield on 10-Year Treasury bonds is up to 2.01 percent. NYMEX crude oil is up to $59.63/barrel. Natural gas futures are down to $2.23/mmbtu.



For a PDF version of this report, please click here: June 2019 ISM Manufacturing Index, May Construction Spending

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

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May 2019 Housing Starts, June NAHB

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

Housing Starts Ease in May, Despite Lower Mortgage Rates

*     Housing Starts decreased by 0.9 percent in May to a 1,269,000 unit annual rate.
*     Housing Permits were little changed in May, inching up by 0.3 percent, to a 1,294,000 unit annual rate.
*     Builder Confidence fell in June according to the National Association of Home Builders.

Despite the boost to housing affordability from lower mortgage rates this spring, builders were still cautious in May, keeping the level of housing starts and permits little changed from April. Total housing starts eased by 0.9 percent to a 1,269,000 unit annual rate in May. Single-family starts fell by 6.4 percent, to an 820,000 unit rate, well below the recent high of 966,000 from January. Multifamily starts jumped up by 10.9 percent, to a 449,000 unit rate, the strongest rate since January 2018. This was the third double-digit percent gain in multifamily starts in the last four months, so it does look like there is a little momentum on the multifamily side. Total permits were little changed in May, gaining just 0.3 percent for the month, to a 1,294,000 unit annual rate. Single-family permits were up by 3.7 percent, to an 815,000 unit rate. Multifamily permits fell by 5.0 percent, to a 479,000 unit annual rate. The gap between multifamily permits and multifamily starts has been persistent since early 2017 and does not necessarily imply that starts will catch up.

According to the National Association of Home Builders, their builder confidence index fell two points in June, to 64. The NAHB says that builders still face high development and construction costs which are contributing to affordability issues for entry-level buyers.

The May housing starts data will be reviewed by the Federal Reserve as the Federal Open Market Committee begins its two-day meeting this morning. We expect to see no changes to monetary policy at the conclusion of the meeting tomorrow afternoon. However, we do expect Fed Chairman Jay Powell to change the tone of the policy announcement and his comments at the follow-up press conference. We look for the Fed to acknowledge that U.S. and international economic momentum slowed in the second quarter and that they will be open to reducing the fed funds rate soon, if needed. In our June U.S. Economic Update, we have one 25 basis point fed funds rate cut occurring in July, and one more in December of this year. We believe that a fed funds rate cut soon would be positive for the overall U.S. economy, and mildly positive for housing markets. However, this has been a long buying cycle for housing that has largely spent out any pent-up demand following the Great Recession.

Market Reaction: Stock indexes opened with gains. The yield on 10-year Treasury bonds is down to 2.06 percent. NYMEX crude oil is up to $53.48/barrel. Natural gas futures are down to $2.37/mmbtu.

For a PDF version of this report, please click here: May 2019 Housing Starts, June NAHB

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

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May CPI, PPI, June Mortgage Apps

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

Lower Energy Prices Weigh on Headline Inflation 

•The May Consumer Price Index increased by 0.1 percent, as energy prices dropped.
•The Producer Price Index for May also gained just 0.1 percent.  
•Mortgage Applications jumped by 26.8 percent in early June as mortgage rates declined.

Falling petroleum prices kept headline inflation readings subdued in May. The Consumer Price Index increased by just 0.1 percent for the month, after increasing by 0.3 percent in April. The CPI’s energy price sub-index fell by 0.6 percent in May after three months of strong gains. High inventories and the prospect of cooler global demand have pulled crude oil prices (WTI) down from near $64 per barrel in early May to near $52 per barrel in mid-June. We expect to see ongoing drag from energy prices in the June CPI. Food prices gained 0.3 percent in May, pushed up by non-alcoholic beverages and other categories. Core CPI (less food and energy) increased by just 0.1 percent for the fourth consecutive month. Over the previous 12 months, headline CPI was up by 1.8 percent, well below the 2.9 percent year-over-year gains from last summer. Core CPI was up by 2.0 percent for the 12 months ending in May, down from the 2.3 percent year-over-year gain from June 2018. Recent tepid gains in core CPI are set to pull the year-over-year gains even lower in the months ahead. 

Producer prices are also feeling the drag from energy. As reported yesterday, the headline Producer Price Index for Final Demand gained just 0.1 percent in May. The energy sub-index for PPI fell by 1.0 percent for the month. Wholesale food prices ticked down 0.3 percent. The trade sub-index fell by 0.5 percent in May after posting a similar loss in April. Core PPI (excluding food, energy and trade) increased 0.4 percent in May for the second consecutive month. Over the previous 12 months, headline PPI was up by 1.8 percent, down significantly from the 3.4 percent year-over-year increase from last July. Core PPI was up by 2.3 percent for the 12 months ending in May, down from 3.1 percent year-over-year growth last September. 

The downward trend in year-over-year inflation readings will be a topic for discussion at the upcoming Federal Open Market Committee meeting over June 18/19. We expect the Fed to keep interest rates unchanged at this meeting, but we also expect the Fed to start modifying their forward guidance, allowing for the possibility of rate cuts soon. 

Total mortgage applications increased by 26.8 percent for the week ending June 7. Refis surged, up 46.5 percent for the week, after gaining 6.4 percent the week before. Purchase apps were also up in early June, increasing by 10.0 percent. On a four-week moving average basis, refi apps were up 47.5 percent over the previous 12 months. Purchase apps were up 6.3 percent over the year. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage fell to 4.12 percent. 

Market Reaction: U.S. equity markets opened with losses. The 10-Year Treasury bond yield is down to 2.12 percent. NYMEX crude oil is down to $51.93/barrel. Natural gas futures are down to $2.39/mmbtu.

For a PDF version of this report, please click here:  May CPI, PPI, June Mortgage Apps

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

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May 2019 U.S. Employment

June 7, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Weaker-Than-Expected Job Growth in May Puts Pressure on the Fed

•    Payroll Employment increased by just 75,000 jobs in May.
•    The Unemployment Rate for May was unchanged at 3.6 percent.
•    Average Hourly Earnings gained 0.2 percent in May and were up 3.1 percent for the year.
•    The Average Workweek was unchanged at 34.4 hours.

The official Bureau of Labor Statistics job count for May showed a weaker-than-expected gain of 75,000 jobs for the month. Today’s official jobs numbers come on the heels of the weak ADP Employment Report, issued on Wednesday, that showed a gain of just 27,000 net new private-sector jobs for the month. The unemployment rate remained at 3.6 percent for the month. Average hourly earnings were up a weak-to-moderate 0.2 percent in May and were up 3.1 percent over the previous 12 months. The tepid gain in wages reinforces the interpretation of the soft payroll numbers. The average workweek was unchanged at 34.4 hours. Revisions to March and April payrolls were negative, totaling -75,000 jobs for the two months.

Today’s job report is an important data point for the Federal Reserve heading into the upcoming FOMC meeting over June 18/19. As is often the case, the data is not conclusively good, nor conclusively bad. But it is bad enough to get the Fed focused on preparing for an eventual rate cut. Other recent employment-related data has been solid, including unemployment insurance claims through May and the May ISM surveys. Still, the weak ADP number and the weaker-than-expected BLS number for May, combined with the sizeable negative revisions for March and April payrolls are important considerations for the Fed. We will be issuing our June U.S. economic and interest rates forecasts on Monday. We expect to show at least one fed funds rate cut for this year, and possibly more.

The establishment data showed soft numbers in several smaller sectors. Mining and logging gained 1,000 net new jobs in May. Construction was up by just 4,000 jobs, which is weak. Manufacturing gained 3,000 jobs in May on net, weaker than recent gains. Wholesale trade employment was up by a solid 7,100. Retail trade showed a loss of 7,600 jobs. Transportation and warehousing was little changed, down 200 jobs in May. Information services gave up 5,000 jobs. Financials services was soft, gaining 2,000 jobs. Professional and business services posted a moderate gain of 33,000 net new jobs for the month. Education and healthcare also posted a moderate gain, up 27,000 jobs. Leisure and hospitality posted a solid gain of 26,000 jobs in May. Government employment was a wildcard. It declined by 15,000 jobs in May. Heading into the 2020 Census, we expect to see a temporary surge in government hiring. Prior to the 2010 Census, there was a surge of about 100,000 jobs in the spring of 2009, related to the 2010 Census. We have not yet seen a similarly timed surge for the upcoming Census. During the summer of 2010, government hiring surged again, by nearly 500,000 jobs for just a few months. This brought the unemployment rate down from about 10 percent to about 9.5 percent. We expect to see a similar surge in temporary government jobs next summer. But it will be very interesting to see if the hiring level is as strong as it was in the past. This is because the unemployment rate is so much lower now, 3.6 percent versus 10 percent. The federal government may have trouble finding enough temporary workers in the current very tight labor market.

Market Reaction: U.S. equity markets were up after the open. The 10-Year T-bond yield is down to 2.06 percent. NYMEX crude oil is up to $53.46/barrel. Natural gas futures are down to $2.32/mmbtu.

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

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

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April 2019 U.S. International Trade, May UI Claims

June 6, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Trade and Claims Data Positive Ahead of Important Jobs Report

•The U.S. Trade Gap narrowed in April, to -$50.8 billion, improving from March’s -$51.9 billion.
•Initial Claims for Unemployment Insurance remained at 218,000 for the week ending June 1.

International trade is a very complex space right now with multiple forces acting in different directions. The good news is that the nominal U.S. international trade gap narrowed slightly in April after widening in March.  New threats of tariffs and counter-tariffs will tend to keep total trade subdued, while the month-to-month data may be skewed by merchants seeking to front-load shipments ahead of new tariffs. Meanwhile, the strong U.S. dollar and weaker international demand remain headwinds for U.S. exports. Nominal exports dropped by $4.6 billion in April after increasing for three consecutive months. Exports of goods dropped by $4.4 billion with losses in civilian aircraft, automotive and consumer goods. Boeing’s problems with the 737 Max may be a factor. Year-to-date civilian aircraft exports are down moderately in 2019 compared to 2018. Nominal imports dipped by $5.7 billion as imports of goods decreased by $5.4 billion. After adjusting for price changes, the real trade balance in goods for April was below the first quarter average, suggesting that as of now, trade will be a moderate positive for Q2 GDP. This could change easily with two more months left to report in the second quarter.

Initial claims for unemployment insurance were unchanged at 218,000 for the week ending June 1. This is a good level, countering the concern about weakening labor markets raised by the disappointing ADP employment numbers for May. Tomorrow, we will see the official BLS employment numbers for May. We expect them to be stronger than the ADP numbers. Continuing claims gained 20,000 for the week ending May 25. This is well within the range of normal and should not cause alarm. 

We believe that the payroll number for May, to be released by the BLS tomorrow morning, is an important data point for the Federal Reserve. The Fed is under pressure from financial markets to cut the fed funds rate at least once this year. The fed funds futures market shows a strong implied probability for at least two 25 basis point rate cuts before the end of this year. Some forecasters are calling for three rate cuts by the Fed within the next nine months. Trade disruptions and cooler rest-of-world growth are key concerns. However, U.S. data is still looking solid for the most part. The May ISM Non-Manufacturing Index improved, and the Fed’s recent Beige Book, which discusses regional economic conditions from April through mid-May, was positive for almost all regions. A key exception to the recent positive data was the ADP employment data for May which showed a net gain of only 27,000 private-sector jobs for the month.  A moderately positive payroll number tomorrow, showing about 120,000 or more net new jobs for May would erase concerns about the labor market, and buy some time for the Fed to watch data and see how trade discussions are working out before committing to a new course of action. 

Market Reaction: U.S. equity markets gave up opening gains. The yield on 10-Year Treasury bonds is down to 2.10 percent. NYMEX crude oil is down to $51.51/barrel. Natural gas futures are down to $2.33/mmbtu.

For a PDF version of this report, click here: April 2019 U.S. International Trade, 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.  

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

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

Weak ADP Employment Report Lowers Expectations for May Payrolls

*     The ADP Employment Report for May showed an increase of just 27,000 private sector jobs.
*     The ISM Non-Manufacturing Index for May increased to a solid 56.9.
*     Mortgage Applications increased at the end of May as refi activity picked up.

The ADP employment report for May, which monitors private-sector job creation, was much weaker than expected, showing a net gain of just 27,000 private-sector jobs. The disappointing report lowers expectations for the official Bureau of Labor Statistics employment report for May, due out Friday morning. The weak ADP numbers do not necessarily signal an imminent slowdown in the U.S. economy. Occasionally, the series will slump and then bounce back due to data collection, weather and/or other anomalies. So we will be looking for other signals in the economy that either corroborate or refute the weak ADP report. According to ADP, small businesses (less than 50 employees) gave up 52,000 jobs in May. This is the worst monthly performance for small businesses this side of the Great Recession. Medium-sized businesses (50-499 employees) also showed weaker-than-expected job creation, gaining just 11,000 employees on net. This is also the weakest monthly performance for medium-sized businesses since the end of the Great Recession. Large businesses put up solid numbers in May, gaining a net 68,000 workers. The construction industry was a big drag on the ADP numbers, giving up 36,000 jobs in May. Natural resources and mining lost 4,000 jobs. Manufacturing lost a net of 3,000 workers. Information services gave up 3,000 and other services dropped 9,000. Because of today’s weak ADP report for May, we will lower our expectation for the BLS report to just 100,000 net new jobs in May. The ADP and BLS numbers are related but they are entirely different surveys, so they can diverge in any given month.

The ISM Non-Manufacturing Index for May does not corroborate the weak ADP employment report. In May, the ISM Non-Manufacturing Index increased from 55.5 to a solid 56.9, indicating moderate expansion for the bulk of the U.S. economy. The business activity, new orders and employment sub-indexes all improved and are all well above the break-even 50 mark. The only sub-index under 50 in May was supplier deliveries. Anecdotal comments were generally positive but did show broad concern about the impact of trade tariffs. Sixteen out of seventeen industries reported growth for the month. Only agriculture reported worsening conditions.

Total mortgage applications increased by 1.5 percent for the last week of May. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage fell to 4.23 percent. Refi apps gained 6.4 percent for the week. Despite the recent decline in mortgage rates, purchase apps fell by 2.4 percent, the fourth consecutive weekly decline. On a four-week moving average basis, refis are up 27.3 percent over a year ago. Purchase apps are up 4.9 percent over the last year.

Market Reaction: U.S. equity markets were mixed after the open. The yield on 10-Year T-bonds is down to 2.10 percent. NYMEX crude oil is down to $51.59/barrel. Natural gas futures are down to $2.39/mmbtu.

For a PDF version of this publication, click here: May 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.

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May 2019 ISM Manufacturing Index, April Construction Spending

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

U.S. Manufacturing Index Eases, Still Showing Modest Expansion

*     The ISM Manufacturing Index for May decreased to a still-positive 52.1 percent.
*     Construction Spending for April was unchanged from May.

The ISM Manufacturing Index decreased from 52.8 in April to a still-positive 52.1 in May. This is the lowest reading for the index since October 2016. Momentum in the manufacturing sector has clearly dissipated since the recent high headline reading of 60.8 from last August. The loss of momentum in U.S. manufacturing parallels what we are seeing in many European and Asian economies as well. Seven out of ten sub-indexes were positive in May, including new orders, production and employment. Customers’ inventories remained in contraction mode, as did imports. Backlog of new orders fell into contraction mode for the first time since January 2017. Eleven of the eighteen industries reported growth in May. The six industries reporting contraction were apparel, primary metals, petroleum, wood, paper and fabricated metals. Anecdotal comments were mixed. Some industries are concerned about the impact of new trade tariffs imposed by the U.S. and China.

The total value of construction put in place in May was unchanged from April. Private residential construction declined by 0.6 percent for the month despite some help from new multifamily construction. Private nonresidential construction declined by 2.9 percent in April as most categories gave up ground. The value of public construction put in place increased by 4.8 percent in May.

While neither of today’s major U.S. economic releases are terrible, together they add to the concern that the U.S. economy lost momentum the second quarter. The Federal Reserve will look at the cooler U.S. data at the upcoming FOMC meeting over June 18/19. We expect the Fed to keep the fed funds rate range unchanged at 2.25-2.50 percent at its June meeting. Looking beyond June, the fed funds futures market is leaning noticeably toward an expectation of two fed funds rate cuts by the end of this year. Currently the implied odds of at least one 25 basis point rate cut this year stand at about 94 percent. The implied odds of at least two rate cuts are about 78 percent. We will be listening carefully to the fedspeak from the June FOMC meeting to hear if Fed officials think that they need to prepare financial markets for an upcoming rate cut.

Market Reaction: U.S. equity markets were mixed after the open. The yield on 10-Year Treasury bonds is down to 2.12 percent. NYMEX crude oil is up to $53.80/barrel. Natural gas futures are down to $2.41/mmbtu.

For a PDF version of this report, click here: May 2019 ISM Manufacturing Index, April Construction Spending

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

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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.

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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.

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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.

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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.

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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.

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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.  

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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February 2019 Leading Indicators, March UI Claims

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

Leading Indicators Improve in February

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

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

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

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

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

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

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FOMC Policy Announcement and Supporting Materials

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

Fed Leaves Fed Funds Rate Unchanged as Expected

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

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

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

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

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

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

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

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

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