December 2018 U.S. Employment

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

A Whale of Jobs Report

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

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

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

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

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

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

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

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

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

Bright and Shiny ADP Jobs Report Contrasts with Other Gloomier Data 

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

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

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

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

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

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

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

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

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FOMC Policy Announcement and Supporting Materials

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

Fed Raises Fed Funds Rate as Expected

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

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

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

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

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

 

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

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

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November 2018 Housing Starts, December NAHB

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

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

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

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

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

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

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

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

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

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November 2018 Retail Sales, Industrial Production

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

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

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

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

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

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

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

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

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November Consumer Price Index, Producer Price Index, Mortgage Apps

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

Falling Energy Prices Keep Headline Inflation in Check

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

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

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

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

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

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

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

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

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

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November 2018 U.S. Employment

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

Jobs Report Was Solid, Payroll Growth a Little Below Expectations

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

U.S. payrolls expanded by a weaker-than-expected 155,000 net new jobs in November. The U.S. only needs to add between 110,000 to 130,000 net new jobs per month to absorb new entrants into the labor force. So November’s payroll numbers were a solid gain for the U.S. labor market. The October payrolls number was revised down to +237,000 jobs. The household survey of employed showed a strong gain of 200,000 jobs while the labor force grew by a slightly weaker +133,000. The U.S. unemployment rate was unchanged in November at 3.7 percent. Wage pressure remained moderate. Average hourly earnings increased by 0.2 percent for the month and were up by 3.1 percent over the previous 12 months. The labor force participation rate was unchanged at 62.9 percent in November.

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

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

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

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

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

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November 2018 ISM MF Index, Oct. Construction Spending

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

U.S. Manufacturing Conditions Improved in November

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

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

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

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

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

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

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October 2018 Income & Spending, Nov. UI Claims

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

Spending Outpaced Income, Claims Crept Up

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

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

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

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

For a PDF version of this report, click here: October 2018 Income & Spending, Nov. UI Claims

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

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

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

New Home Sales Are Falling Hard

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

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

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

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

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

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

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

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

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

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October 2018 U.S. Employment, September International Trade

November 2, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Strong Job Growth Keeps Fed “Gradualism” Engaged

*     Payroll Employment increased by 250,000 jobs in October. September was revised down to +118,000.
*     The Unemployment Rate for October was unchanged at 3.7 percent.
*     Average Hourly Earnings increased by 0.2 percent in October and were up 3.1 percent over the year.
*     The Average Workweek in October increased to 34.5 hours.
*     The U.S. Trade Gap widened in September to $54.0 billion.

U.S. payrolls expanded by a stronger-than-expected 250,000 net new jobs in October. Some of the good news was bought back by a downward revision in September, to now show a net gain of 118,000 for that month. August was revised up to show a very strong +286,000. The average net payroll gain over the last three months is 218,000 which is very strong considering how tight labor markets are. Hurricanes in September and October may have contributed to recent volatility in the jobs numbers. However, the Bureau of Labor Statistics said Hurricane Michael in October did not impact the response rates for their surveys. The household survey of employed showed a very strong increase of 600,000 jobs and similar strong gain of 711,000 in the labor force. The U.S. unemployment rate stayed at 3.7 percent in October, as expected. Wage pressure was moderate. Average hourly earnings increased by 0.2 percent for the month and were up by 3.1 percent over the previous 12 months. The labor force participation rate ticked up to 62.9 percent, little changed over the last year.

The establishment detail shows broad-based job growth across industries. Mining and logging dug up 5,000 net new jobs in October. Construction built 30,000. Manufacturing assembled a strong net gain of 32,000 jobs for the month. Wholesale trade added 9,100 net new jobs. Retail was soft, ringing up only 2,400 net new jobs in October. Utilities were stable, adding 1,200 jobs. Information services gained 7,000 jobs, as did financial services. Professional and business services accounted for an additional 35,000 net new jobs. Education and healthcare gained 44,000 jobs. Leisure and hospitality served up 42,000 jobs. The government sector added 4,000.

Job growth in the U.S. remains strong. Year-over-year wage gains are inching up. The Federal Reserve will continue on its path of “gradualism”. As long as the stock market stabilizes, which we expect it to do, the Fed will remain on track to deliver the fourth 25 basis point increase in the fed funds rate range on December 19. No rate hike at the upcoming November 7/8 FOMC meeting.
The U.S. international trade gap widened in September to -$54.0 billion. Imports increased by $3.8 billion as exports expanded by $3.1 billion. The strong dollar will keep pressure on the trade gap this fall.

Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is up to 3.18 percent. NYMEX crude oil is down to $63.39/barrel. Natural gas futures are down to $3.22/mmbtu.

For a PDF version of this report, click here: October 2018 U.S. Employment, September International Trade

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

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October 2018 ISM MF Index,UI Claims,Q3 Productivity,Sept. Construction

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

Manufacturing Conditions Still Positive

•    The ISM Manufacturing Index for October slipped to a still-positive 57.7 percent.
•    Productivity increased at a 2.2 percent annualized rate in the third quarter.
•    Construction Spending in September was unchanged.
•    Initial Claims for Unemployment Insurance eased by 2,000, to hit 214,000 for the week ending Oct. 27.

The ISM Manufacturing Index slipped from a strong 59.8 in September to a still-good 57.7 in October. History shows that the index usually does not stay at or above 60 for very long. The enduring strength that we have seen in the manufacturing index since August 2017 is unusual. Nine out of ten sub-indexes are still above the break-even 50 mark, including new orders, production and employment. This indicates that most manufacturers are still enjoying positive conditions. Customers’ inventories remain lower than expected. Of the 18 reporting industries, 13 said that they expanded in October. The four industries that reported contraction were wood products, primary metals, nonmetallic products and fabricated metal products. A cooler construction industry comes to mind as a possible common factor for those four contracting industries. Tariffs are still a focus of the anecdotal comments in the October report.

Nonfarm business productivity increased at a 2.2 percent annual rate in the third quarter, below the 3.0 percent annualized gain of the second quarter. On a year-over-year basis, productivity was up by 1.3 percent in 2018Q3 over 2017Q3. The year-over-year gain of 1.3 percent is about where productivity growth has been since the end of 2016. Unit labor costs increased at a 1.2 percent annualized rate in Q3 after declining at a 1.0 percent rate in Q2. Productivity growth remains weak in this expansion. To say it another way, businesses are still relying, to a large extent, on increasing employment to expand output, and relying relatively less on investment in machines and software. As available labor becomes even scarcer moving forward, this will become a more challenging method of expanding output.

Total construction spending for September was unchanged from August. Private residential construction spending increased by 0.6 percent for the month, with help from multifamily projects. Private nonresidential spending was little changed, up by 0.1 percent in September. Public construction spending fell by 0.9 percent for the month. Over the previous 12 months overall construction spending is still up by 7.2 percent.

Labor market indicators continue to show very tight conditions. Initial claims for unemployment insurance were little changed, easing by 2,000 for the week ending October 27, to hit 214,000. Continuing claims fell by 7,000, to hit 1,631,000 for the week ending October 20..

Market Reaction: U.S. equity markets are positive. The yield on 10-Year Treasury bonds is down to 3.14 percent. NYMEX crude oil is down to $63.74/barrel. Natural gas futures are down to $3.28/mmbtu.

For a PDF version of this report, click here: October 2018 ISM MF Index, UI Claims, Q3 Productivity, Sept. Construction Spending

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

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September 2018 Income & Spending

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

Income Growth Was Sluggish in September but Consumers Persevered

*     U.S. Nominal Personal Income increased by just 0.2 percent in September.
*     After inflation and taxes, Real Disposable Income was up by 0.1 percent.
*     Real Consumer Spending increased by 0.3 percent in September.
*     The Personal Consumption Expenditure Price Index gained 0.1 percent in September.

The September income and spending data shows sluggish real income growth at the end of the third quarter. Nominal personal income was up by 0.2 percent in September. Wages and salaries are the biggest part of personal income and they were only up by 0.2 percent, the weakest monthly gain since October 2017. Weaker-than-expected job growth in September was a contributing factor. After adjusting for inflation and taxes, real disposable income was up by just 0.1 percent in September, the weakest gain there since last April. Undaunted, consumers increased their spending by more than their incomes increased. Real consumer spending was up by a moderate-to-strong 0.3 percent in September. With spending increasing by more than income, the personal saving rate went down. It was as high as 7.4 percent in February this year, but in September the saving rate fell to 6.2 percent. That is not a bad number and the trend is unclear at this time. However, if the saving rate continues to decline, that would mean that consumers are leaning more on their credit cards. Inflation was calm again in September. The Personal Consumption Expenditure (PCE) Price Index increased by just 0.1 percent for the fourth consecutive month. Over the previous 12 months, the PCE Price Index was up by 2.0 percent and the core PCE Price Index (less food and energy) was also up by 2.0 percent over the year. This aligns with the Federal Reserve’s near-2-percent inflation target. We look for moderate real consumer spending growth in the fourth quarter with overall GDP growth stepping down from a 3.5 percent annual rate in Q3 to something closer to 2.5 percent in Q4. We will be updating our U.S. Economic Outlook early next week.

Market Reaction: U.S. equity markets opened with gains. The yield on the 10-year Treasury bond is up to 3.10 percent. NYMEX crude is down to $66.97/barrel. Natural gas futures are down to $3.15/mmbtu.

For a PDF version of this report, click here: September 2018 Income & Spending

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

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2018Q3 GDP, First Estimate

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

3.5 Percent Q3 Real GDP Growth Masks Major Gyrations in Components

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

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

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

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

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

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

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

Soggy September Is Not Enough to Explain Housing Slump

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

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

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

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

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

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

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

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

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September 2018 Housing Starts, Oct. NAHB, Mortgage Apps

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

Multifamily Construction Is Losing Steam

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

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

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

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

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

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

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

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September 2018 Retail Sales

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

Shoppers Subdued in August and September

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

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

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

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

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

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

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

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September 2018 Consumer Price Index, October UI Claims

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

Consumer Prices Tame

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

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

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

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

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

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

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The ADP Employment Report for September showed another strong monthly

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

More Strong Data Sets Up Superlative Shortage

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

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

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

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


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

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

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September 2018 ISM MF Index, August Construction Spending

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

Manufacturing Conditions Still Hot, Construction Still Lukewarm

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

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

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

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

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

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

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FOMC Policy Announcement and Supporting Materials

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

Fed Raises Fed Funds Rate as Expected

*     The FOMC voted today to increase the fed funds rate range to 2.00-2.25 percent.
*     A fourth rate hike for 2018, on December 19, appears to be very likely.

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

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

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

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

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

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

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

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

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August Leading Indicators, Existing Home Sales, September UI Claims

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

Most Indicators Up but Housing Sideways

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

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

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

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

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


For a PDF version of this report, click here: August Leading Indicators, Existing Home Sales, September UI Claims

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

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August 2018 Housing Starts, September Mortgage Apps

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

Residential Construction Data Zigs and Zags

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

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

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

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


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

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

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August 2018 Retail Sales, Industrial Production, July Inventories

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

Shoppers Went on Vacation in August

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

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

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

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

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

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

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

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

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August 2018 Consumer Price Index, September UI Claims

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

Consumer Prices Up Moderately in August

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

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

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

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

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

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

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

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August 2018 Producer Prices and Mortgage Apps

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

Inflation Absent from Headline Price Indexes

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

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

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

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

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

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

 

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August 2018 U.S. Employment

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

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

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

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

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

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

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

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

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August 2018 ADP Jobs, ISM Non-MF Index, UI Claims

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

Positive Data Show a Strong U.S. Economy

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

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

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

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

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

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

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

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August 2018 ISM MF Index, July Construction Spending

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

Manufacturing Conditions Strengthen Noticeably in Late Summer

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

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

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

 

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

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

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July 2018 Income & Spending, August UI Claims

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

Moderate Income and Spending Gains, Less Pyrotechnic


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

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

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

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

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

 

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


 

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