Comerica Economic Weekly, March 22, 2019

March 22, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

The Federal Reserve dominated economic news this week as it released its policy announcement on Wednesday. Treasury bond yields fell after the new dot plot signaled no Fed rate hikes for 2019. 

The Conference Board’s Leading Economic Index for the U.S. improved in February, breaking a four-month string of flat-to-down months that started last October. The Leading Index increased by 0.2 percent in February, pushed by the rally in stock prices. The Coincident Index also increased by 0.2 percent in February, driven by personal income. The Lagging Index was unchanged in February, breaking a string of four consecutive positive months. All in, the three indexes show slower, but ongoing, momentum for the U.S. economy through the first quarter.

Initial claims for unemployment insurance fell by 9,000 for the week ending March 16, to hit 216,000. Continuing claims fell by 27,000 for the week ending March 9, to hit a very low level of 1,750,000. The claims data is consistent with a rebound in job creation in March. 

Sales of existing homes jumped by 11.8 percent in February, to a 5.51 million unit annual rate as buyers took advantage of lower mortgage rates. This is the highest sales rate since March 2018. The median sale price of an existing home increased by 3.6 percent in February over the previous year. The inventory of unsold homes dropped from 3.9 to 3.5 months’ worth in February.

Total mortgage applications increased by 1.6 percent for the week ending March 15, led by a 3.5 percent gain in refis. Purchase apps inched up by 0.3 percent.  On a four-week moving average basis refis were down 2.6 percent from a year ago, while purchase apps were up 1.6 percent over the previous 12 months. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage fell to 4.55 percent.

As widely expected, the Federal Reserve left the fed funds rate range unchanged at 2.25-2.50 percent on March 20. The policy announcement contains the now familiar “patient” language that the Fed first rolled out in December. The economic commentary in the policy announcement was slightly downgraded from the policy announcement of January 30. The median projection of real GDP growth for 2019 was downgraded from 2.3 percent from last December, to 2.1 percent. This is the Fed’s second consecutive downgrade of expected GDP growth for 2019. The new dot plot is consistent with zero rate hikes in 2019 and just one more rate hike over 2020 and 2021. The vote on the policy decision was unanimous.

The Fed also released more details on balance sheet normalization. The Fed now plans to begin reducing the pace of balance sheet reduction this May and conclude the reduction of Treasury bonds on its balance sheet at the end of September 2019. Reduction of agency debt and MBS will continue past September. As roll-off of maturing assets tapers down, the Fed will invest maturing principal across a range of Treasury bond maturities consistent with the composition of maturing Treasury bonds outstanding. 

The flash purchasing managers’ index for German manufacturing for March fell to a five-year low of 47.7, indicating modest contraction.  The gloomy German economic data brought the 10-year Bund yield down to negative 0.01 percent at the end of the week. This put further downward pressure on U.S. Treasury bond yields. A weaker German economy will have a ripple effect on the rest of Europe. This news will tend to keep European Central Bank monetary policy more accommodative, which, in turn, will tend to reinforce the Federal Reserve’s expected flatline on the fed funds rate this year.

For a PDF version of this report, click here:  Comerica Economic Weekly, March 22, 2019

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

Read More

Comerica Economic Weekly, March 15, 2019

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

It was another week of mixed readings for the U.S. economy. Inflation was muted. Retail sales were disappointing and industrial production was so-so. 

Upstream prices showed little momentum in February as the Producer Price Index for final demand gained just 0.1 percent for the month. Over the previous 12 months, the PPI for final demand was up by 1.9 percent, well below the recent peak year-over-year change of 3.4 percent from last July. A jump in energy prices in February was countered in the headline index by a drop in prices for transportation and warehousing services. 

Downstream prices also behaved. The Consumer Price Index for February increased by 0.2 percent. Over the previous year, the headline CPI was up by just 1.5 percent. Consumer energy prices climbed through February, up by 0.4 percent for the month. Utility, vehicle and medical care commodity prices all dropped. 

Retail sales gained just 0.2 percent in January after dropping by 1.6 percent in December. The nominal value of motor vehicle sales fell 2.4 percent for the month. Several other categories were weak, reflecting the direct impact of the government shutdown and its weight on overall consumer confidence. 

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

Industrial production inched up by 0.1 percent in in February. Manufacturing output dropped by 0.4 percent even though vehicle assemblies were steady. Utility output bounced by 3.7 percent in February after sliding through December and January. 

Total mortgage applications improved by 2.3 percent for the week ending March 8. Purchase apps were up by 4.3 percent. Refi apps were down by just 0.2 percent. On a four-week moving average basis, refi apps were down 5.5 percent from a year ago, while purchase apps were up by 2.2 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage fell to 4.64 percent. 

Sales of new homes dropped by 6.9 percent in January, to a 607,000 unit annual rate. The January drop came after a sizeable gain in December and it also was coincident with the government shutdown. Lower mortgage rates will help this spring.

Total construction spending increased by 1.3 percent in January, led by an unsustainable 4.9 percent jump in spending on public projects. 

Job openings increased in January, consistent with the outsized net gain of 311,000 payroll jobs for the month. The JOLTS data confirm that hiring was strong. 

New claims for unemployment insurance increased by 6,000, to hit 229,000 for the week ending March 9. Continuing claims gained 18,000, to hit 1,776,000 for the week ending March 2. 

The Federal Open Market Committee will meet over March 19/20. Just like the January FOMC meeting, this will be an important meeting, more for what the Fed says than what they do. We expect them to leave the benchmark fed funds rate range unchanged. But we look forward to new information about balance sheet reduction and the final target level of the Fed’s balance sheet. We also look forward to seeing the new dot plot, which we expect to be flatter than the December dot plot, reflecting the Fed’s expectations for fewer rate hikes in the near term. We expect this to be corroborated by downward revisions to the Fed’s economic forecast numbers.

For a PDF version of this report, click here:  Comerica Economic Weekly, March 15, 2019

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

Read More

Comerica Economic Weekly, March 8, 2019

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

U.S. economic data was mixed for the week, still partly scrambled by the federal government shutdown through January. 

The biggest disappointment came from the March payroll numbers which showed a very weak gain of just 20,000 net new jobs for the month. The already strong December and January payroll numbers were revised up slightly. The unemployment rate for February came back down to 3.8 percent. So it was not a universally bad report. Wages picked up. Average hourly earnings were up by 3.4 percent over the previous 12 months. 

New claims for unemployment insurance fell by 3,000, to hit 223,000 for the week ending March 2. Continuing claims dropped by 50,000, to hit 1,755,000 for the week ending February 23. No problems here.

Nonfarm business productivity increased by a 1.9 percent annual rate in the fourth quarter, about the same as its year-over-year increase. Unit labor costs increased at a 2.0 percent clip in the fourth quarter and were up by 1.0 percent over the year. Productivity growth appears to be gradually improving. Stronger productivity growth means that increases in wages are less inflationary.  

Housing starts bounced back in January, up by 18.6 percent for the month, to a 1,230,000 unit annual rate. Single-family starts surged to their strongest rate since last May. Multifamily starts also improved for the month. Both series still appear to be range bound. Permits improved modestly in January, up by 1.4 percent with help from the multifamily segment. 

New home sales for December increased by 3.7 percent, to a 621,000 unit annual rate. The interesting story with the new homes sales data is the significant downward revision to the November sales rate, down to 599,000, after originally being reported at 657,000. The trend for new home sales still looks soft, and the December sales rate of 621,000 remains well below the recent peak of 712,000 from November 2017. The months’ supply of new homes on the market ticked up to 6.6 months’ worth in December, still moderately over-supplied.

The U.S. international trade gap widened noticeably in December, to -$59.8 billion from -$50.3 billion in November . Exports dropped by $3.9 billion in December, while imports increased by $5.5 billion. The wider-than-expected trade gap in November will be a slight negative factor in the Q4 GDP revision.  

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

The Federal Reserve will have a monetary policy meeting over March 19/20. There is a near-universal expectation of no change to the fed funds rate at the upcoming meeting. We expect to hear more about the Fed’s plans for balance sheet reduction. We expect balance sheet reduction to end this year after achieving a target level of about $3.5 trillion. We also look forward to a new dot plot, which we expect to be flatter, consistent with one rate hike this year at most. Jay Powell will also host a press conference at the conclusion of the meeting.

For a PDF version of this report, click here:  Comerica Economic Weekly, March 8, 2019

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

Read More

Comerica Economic Weekly, March 4, 2019

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

U.S. economic data was mixed last week. Two things are clear about the U.S. economy. First, it has lost a little momentum heading into 2019. Second, it is still expanding. We expect it to keep expanding through the remainder of this year. 

U.S. real GDP growth eased from a 3.4 percent annualized rate in 2018Q3, to 2.6 percent in Q4, about as expected. The biggest contributor to Q4 real GDP growth was consumer spending, which increased at a healthy 2.8 percent annual rate. Importantly, non-residential fixed investment bounced back in Q4 after weak growth in Q3.Inventories were a small boost to Q4 GDP. International trade was a small drag. Total government spending increased slightly in Q4 as a large increase in federal government defense spending was countered by a large decline in federal nondefense spending and a small dip in state and local government spending. 

Nominal personal income eased by 0.1 percent in January, weighed down by the government shutdown. 

Consumer confidence rebounded in February after falling for three consecutive months, according to The Conference Board. 

Light vehicle sales were little changed in February, remaining at a 16.6 million unit annual rate. 

The ISM Manufacturing Index for February fell to a still moderately positive 54.2, well down from the recent peak of 60.0 from June 2018. The production, new orders and employment sub-indexes all remained above the break-even 50 mark. The only industry reporting contraction was nonmetallic mineral products, which are often linked to construction. 

Construction spending fell by 0.6 percent in December. Private residential construction was down 1.4 percent due to weaker single-family building. Private non-residential construction was up by 0.4 percent. Government projects dipped by 0.6 percent.

The North American rig count dipped in late February to 1,038 active rigs. We expect firmer oil prices to stabilize the rig count in coming months. 

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

Housing starts were soft at year end 2018, but forward-looking permits data were in better shape. Total housing starts fell noticeably in December, down by 11.2 percent to a 1,078,000 unit annual rate. This is the weakest new home construction rate since September 2016. Single-family starts were down by 6.7 percent, to a 758,000 unit annual rate. Multifamily starts fell by 20.4 percent, to a weak 320,000 unit rate. Total permits were little changed for the month, up 0.3 percent to an 1,326,000 unit annual rate. Lower mortgage rates are expected to support demand for new homes this spring, which will motivate home construction in the near-term.

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

For a PDF version of this report, click here:  Comerica Economic Weekly, March 4, 2019

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

Read More

Comerica Economic Weekly, February 22, 2019

February 22, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic data was mixed again this week even though recent labor data has been robust. It is tempting to say that this bimodal view of the U.S. economy probably can’t last. At some point one of the two poles dominates. Either the labor data deteriorates as business conditions degrade, or the labor data is so strong that other data is either irrelevant or recovers (in the case of consumer and business confidence). However, if we resist the temptation to jump to conclusions, there is another possibility. That is that the U.S. economy muddles through the year, beset and preoccupied by downside risks, but continues to grow through the year, supported by a strong household sector. Our forecast for the year follows that middle ground. We will see. 

The Conference Board’s Leading Economic Index for the U.S. eased for the second time in the last four months in January, off by 0.1 percent. The Coincident Index was barely positive in January, up by 0.1 percent. The Lagging Index was still strong, showing a 0.5 percent gain.

New orders for durable goods increased by 1.2 percent in December, lifted by commercial aircraft orders. Most other categories were positive, but orders for computers and communications equipment fell noticeably. As a result, core durable goods orders, nondefense capital goods excluding aircraft, dipped by 0.7 percent in December after falling by 1.0 percent in November.

Existing home sales were down again in January, falling for the third consecutive month and extending an ugly trend that began in early 2017. Sales dipped by 1.2 percent to a 4,940,000 unit annual rate. This is the weakest sales rate since November 2015. Lower mortgage rates may be a positive factor in February.

Builder confidence increased in February according to the National Association of Home Builders. Lower mortgage rates were cited as a positive factor.

Mortgages apps increased for the week ending February 15 as refi apps gained 6.4 percent. Purchase apps were up by 1.7 percent, reversing a four-week slide. On a four-week moving average basis, refi apps are down 16.1 percent from a year ago, while purchase apps are up by 0.5 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage ticked up to 4.66 percent. 

Initial claims for unemployment insurance fell by 23,000 for the week ending February 16, to hit 216,000.  Initial claims data has been choppy since last November and the trend still looks like it is up slightly since the lows from last September. Continuing claims fell by 55,000 for the week ending February 9, to hit 1,725,000.

In addition to the economic data releases, the Federal Reserve released the minutes of the January 29/30 FOMC meeting. Even though there was no rate hike announced at the meeting, as was widely expected, it was an important meeting. The Fed changed their tone about future rate hikes, using the words “patient” and “flexible”. The Fed also concluded that they are sticking with the current mechanism for controlling the fed funds rate. This conclusion allows them to establish the goal for balance sheet reduction. The Fed will likely wind down balance sheet reduction by the end of this year, reaching an asset level of about $3.5 trillion dollars. Their portfolio will be dominated by Treasury bonds, but they may retain some mortgage backed securities as well. We expect balance sheet maneuvers to remain in the Fed’s tool bag.

For a PDF version of this report, click here:  Comerica Economic Weekly, February 22, 2019

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

Read More

Comerica Economic Weekly, February 15, 2019

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

U.S. economic data was generally soft this week. The pessimistic interpretation is that the U.S. federal government shut-down from late December through January coincided with reports of cooler global growth, hitting both current confidence and expectations of future demand at the same time.  An optimistic view of the economy is that pent-up demand from December and January will get spent out in February and March, and breakthroughs with “The Wall” and with China trade negotiations will provide momentum heading into spring.

We will split the difference. We expect some, but not all,  of the pent-up demand from the shutdown to be spent out later. We also think that the Trump Administration will emphasize positives in the weeks ahead. However, the freight train of global economic growth takes a long time to slow down, and a long time to speed up. We think that we are still in the slowing process.

China is unleashing more stimulus to counter the drag from weaker trade. Europe does not have the ability to respond as quickly or as forcefully to cooler growth there. In the U.S. monetary tightening is on hold, but the fiscal stimulus from tax reform is fading and a meaningful infrastructure spending package remains elusive.

U.S. retail sales were weaker than expected in December, falling by 1.2 percent. Lower gasoline prices were a factor, but sales fell in several other categories. Auto sales were a bright spot for the month, with the nominal value up by 1.0 percent. Excluding autos and service stations, monthly retail sales fell by 1.4 percent.

Industrial production fell by 0.6 percent in January as manufacturing output decreased by 0.9 percent. Light vehicle production fell from a 12.27 million unit rate in December, to 10.6 million in January. Weather may be partially to blame for lower vehicle production, but dealer inventories are reported to be too high.

Initial claims for unemployment insurance increased by 4,000 for the week ending February 9, to hit 239,000. The trend for initial claims has been choppy but up slightly since the September low. Continuing claims increased by 37,000 for the week ending February 2, to hit 1,773,000. The trend there is also up slightly.

The Producer Price Index for Final Demand fell marginally, by 0.1 percent, in January. Energy prices were down by 3.8 percent at the producer level. Wholesale food prices were down by 1.7 percent for the month. Excluding food, energy and trade, the core PPI for Final Demand was up by 0.2 percent in January, supported by gains in prices for services. Over the 12 months ending in January, the PPI for Final Demand was up by 2.0 percent, while core PPI was up by 2.5 percent.

The headline Consumer Price Index for January was unchanged from December.

OPEC announced crude oil production cuts that put some upward pressure on crude oil prices. However, tighter OPEC supply in 2019 could be countered by increased U.S. oil production and cooler global demand.

The National Federation of Independent Business’s Small Business Optimism Index fell in January, to 101.2, the lowest reading since the fall of 2016. This is the fifth consecutive monthly decline in the NFIB index.

Fed Governor Lael Brainard said yesterday the she expected the Fed to conclude balance sheet runoff by the end of this year.

Job openings in December hit an all-time high.

For a PDF version of this report, click here:  Comerica Economic Weekly, February 15, 2019

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

Read More

Comerica Economic Weekly, February 8, 2019

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

This week we saw further confirmation of a global economic slowdown. U.S. data was mixed. Federal agencies scrambled to get their data release calendars back on track. The Bureau of Economic Analysis announced that we will get an estimate of 2018Q4 U.S. GDP on February 28. Because of the delay caused by the government shutdown the BEA will not issue a first estimate of Q4 GDP. The GDP data released on February 28 will effectively be the second estimate of Q4 GDP. 

Conditions are changing for durable goods manufacturers worldwide. GM reported that their profits have been hurt by weaker-than-expected auto sales in China. U.S. retail automobile inventories are building again, up 3 percent at year end over the previous 12 months. New orders for German manufacturing were down in December. The European Union reduced their forecast for economic growth in 2019. 

For now, evidence for a cooler global economy is concentrated in the manufacturing sector. However, there is some early indication that the service sector is feeling the drag. The IHS Markit Global Services PMI for January eased again, to a still positive 52.6 in January, a 28-month low for that index.

The Census Bureau released U.S. international trade data for November. Trade numbers remain volatile, in part due to new U.S. imports tariffs and countermeasures by trading partners. Beyond the trade wars, the strong dollar and changing global demand are swinging the numbers. In November, U.S. exports decreased by $1.3 billion while imports fell by $7.7 billion. This caused the trade gap to narrow to -$49.3 billion. For now, it looks like trade will be a net positive for Q4 GDP, but that could change if December trade data takes a U-turn. 

The ISM Non-Manufacturing Index for January eased from a strong 58.0 in December, to a more moderate 56.7. The production, new orders and employment sub-indexes all remained comfortably above the neutral 50 mark. The employment sub-index increased from 56.6 in December to 57.8 in January, consistent with the robust payroll jobs numbers for January. Several businesses commented that the government shutdown was a cause for concern, if not an outright drag.

Initial claims for unemployment insurance were volatile through the government shutdown. For the week ending February 2, initial claims fell by 19,000 to hit 234,000. The four-week moving average for initial claims remains slightly elevated from the September 2018 lows. Continuing claims for the week ending January 25 fell by 42,000 to hit 1,736,000. 

The January 2019 Senior Loan Officer Opinion Survey by the Federal Reserve shows a tightening of bank lending standards for commercial real estate. Standards for commercial and industrial loans were unchanged, as were standards for consumer loans and residential real estate loans. Demand for most types of loans was expected to weaken, with the exception of credit card loans.

The Federal Reserve announced that Chairman Jay Powell will deliver his semi-annual congressional testimony beginning on February 27. For now, the fed is in “pause” mode. Former Fed Chair Janet Yellen said this week that the Fed’s next interest rate move could be down. We expect the March dot plot to shift down, showing reduced expectations for further rate hikes. 

For a PDF version of this report, click here:  Comerica Economic Weekly, February 8, 2019

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

 

Read More

Comerica Economic Weekly, February 1, 2019

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

It was an interesting week in the econo-sphere punctuated by a challenging January jobs report and an apparent shift in the Federal Reserve’s posture.

The official Bureau of Labor Statistics employment report for the month of January was especially muddy, due to a combination of factors that challenges all but the broadest conclusions. The establishment survey showed that January payrolls increased by a very strong 304,000.  December payrolls, which were previously reported as up by 312,000, were revised down significantly, to now show a gain of 222,000. According to the BLS, furloughed federal workers were counted as employed in January because they will eventually get paid. The average workweek was unchanged at 34.5 hours. Average hourly earnings increased by 3 cents for a 3.2 percent year-over-year gain. Even though furloughed federal government workers were counted as employed in the establishment survey, they were counted as unemployed in the household survey which gives us the unemployment rate. The household survey of employment dropped by 251,000 jobs in January, causing the unemployment rate to tick up to 4.0 percent. Beyond the inconsistent interpretation of furloughed government workers, there were other mechanical issues with the January employment report that should caution against a strict analysis.

The ISM Manufacturing Index increased from 54.3 in December to 56.6 in January, showing improving conditions for the manufacturing sector. New orders and production both increased, while the employment index dropped slightly. Anecdotal comments were generally   positive. Fourteen out of 18 industries reported growth.

According to The Conference Board, U.S. consumer confidence fell again in January after a noticeable decline in December. The index now stands at a still-positive 120.2. 

New home sales rebounded in November, up strongly, by 16.9 percent to a 657,000 unit annual rate. This was the strongest sales rate since last March. 

The Case-Shiller U.S. National House Price Index for November showed a 5.2 percent gain over the previous year. Most of the 20 key cities showed month-over month price gains, with the exceptions of Cleveland, San Francisco and Seattle.

Mortgage apps eased through the second half of January. For the week ending January 25, purchase apps fell by 2.3 percent while refi apps gave up 5.5 percent. On a four-week moving average basis, refis are down 16.7 percent from a year ago. Purchase apps are up 6 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage ticked up slightly to 4.76 percent in late January.

The Federal Reserve left the fed funds rate range unchanged at 2.25-2.50 percent at the FOMC meeting over January 29/30. Fed Chairman Jay Powell emphasized the Fed’s patient posture and sounded more dovish than he did last fall. Powell implied that the Fed’s balance sheet run-off program may end this year, leaving the Fed’s balance in the neighborhood of $3.5 trillion dollars. Powell also said that the Fed has decided to leave the mechanisms for controlling the fed funds rate unchanged. Powell also acknowledged that balance sheet expansion remains in the Fed’s arsenal for fighting a future economic slowdown. Financial markets responded positively to the news.

For a PDF version of this report, click here:  Comerica Economic Weekly, February 1, 2019

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

Read More

Comerica Economic Weekly, January 25, 2019

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

U.S. economic data released this week was mixed. The U.S. economy is in a transitional state beset by policy headwinds and a cooling global economy. 

While the levels of many data streams are good, the direction of change in recent releases (the deltas) is not good. Inflections in economic data combined with financial market volatility coming at a time when the corporate sector looks increasingly vulnerable to cooler profits is a witch’s brew for the U.S. economy.

At this crucial time, many federal government data sources are not operational due to the partial federal government shutdown. Fortunately, private data sources, the Federal Reserve and some federal offices, including the Bureau of Labor Statistics, are still releasing data. It remains to be seen whether crucial fourth quarter GDP data will be released by the Bureau of Economic Analysis next week as scheduled. Even if the BEA gets back to work soon, it may take some time to process their data and publish it.

Now that the federal shutdown has extended through two government pay cycles, conditions are dire for many affected households. A disruption to air travel due to the lack of pay for TSA workers could be a choke point for the economy. Nonetheless, we believe that the drag on first quarter GDP from the shutdown will be small. However, through this expansion cycle first quarter GDP growth has often been the weakest of the year. The BEA has worked to reduce the residual seasonality in the GDP data, so that may no longer be an issue. But the potential for residual seasonality in the GDP data plus the government shutdown through at least a third of Q1 could result in a weaker than expected Q1 GDP print. 

Each additional week of the government shutdown will put more sand in the gears of the U.S. economy. It is conceivable that a shutdown measured in months could be a contributing factor for a U.S. recession.

The Federal Open Market Committee meets next Tuesday and Wednesday. We expect the Fed to leave policy levers unchanged. However, the messaging may be important. Fed Chairman Jay Powell may use the policy announcement and his post-meeting press conference to reinforce the Fed’s “patient” stance toward interest rate hikes. We believe that the fed funds rate is getting close to its maximum for this cycle and a patient Fed may only increase the fed funds rate one or two more times. We expect to see no rate increase until June. Also, we might receive some clarification from the Fed about its balance sheet reduction program. There is growing speculation that the Fed could end balance sheet reduction (mature asset runoff, quantitative tightening, whatever you like to call it) sooner rather than later. The floor for the Fed’s balance sheet appears to be rising as headwinds increase for the U.S. economy. 

The Conference Board’s Leading Economic Index for the U.S. dipped by 0.1 percent in December. This is the second decline in the last three months. 

Initial claims for unemployment insurance fell by 13,000 for the week ending January 19, to hit 199,000. Federal workers who are not receiving paychecks are eligible for unemployment benefits, so we expect that category of UI claims to increase sharply through January. 

Existing home sales decline by 6.4 percent in December, to a 4.99 million unit annual rate.

For a PDF version of this report, click here:  Comerica Economic Weekly, January 25, 2019

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

Read More

Comerica Economic Weekly, January 18, 2019

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

U.S. economic data released this week was mostly positive, but our line of sight into the U.S. economy is increasingly obscured due to the now longest federal government shutdown in U.S. history.

Data produced by the U.S. Census Bureau and the Bureau of Economic Analysis are not being released due to the government shutdown. That means that the key retail sales and new housing construction data for December that was originally supposed to be release this week will be delayed. The Federal Reserve, the Bureau of Labor Statistics, academic institutions and private sources are all unaffected by the government shutdown.

The Philadelphia Fed reported continued positive manufacturing conditions in January. The Empire State Manufacturing Survey produced by the New York Fed saw only a slight improvement in activity in January.

The National Association of Home Builders Housing Market Index ticked up slightly in January. Builder optimism still remains well below 2018 levels. Lower mortgage rates are helping to support demand.

The Mortgage Bankers Association composite mortgage applications index was up for the second consecutive week. The purchase index was up 9.1 percent and the refi index was up 18.7 percent for the week of January 11.

Labor data was still good through early January, but the government shutdown will likely be more visible in the next round of data. Initial claims for unemployment insurance declined by 3,000 to hit 213,000 for the week ending January 12. Continuing claims climbed by 18,000 to hit 1,737,000 for the week ending January 5.

The Producer Price Index for December fell by 0.2 percent, as crude oil prices dipped to 2018 lows. The energy sub-index was down 5.4 percent for the month. Core PPI (less food, energy and trade) was unchanged in December. The headline PPI was up 2.5 percent and core PPI was up 2.8 percent for the year ending in December.

The December industrial production data from the Federal Reserve marks the 100th anniversary of that data series. Total industrial production increased by a moderate 0.3 percent in December after gaining 0.4 percent in November. Manufacturing output was strong in December, up 1.1 percent. Mining output increased by 1.5 percent. The utility sector was a drag with output declining by 6.3 percent due to mild weather.

On Tuesday, the lower house of the U.K. Parliament voted down the deal that Prime Minister Teresa May negotiated for the U.K. to leave the E.U.  May’s government survived a no confidence vote on Wednesday by a slim 19 vote margin. According to Article 50 of the EU treaty, March 29 is the date for Brexit, with or without a negotiated divorce. However, a recent ruling by the European Court of Justice allows the U.K. to unilaterally revoke the Article 50 exit clause. More intrigue to come.

Comments today from New York Federal Reserve Bank President John Williams reinforce the Fed’s new “patient” language. Williams acknowledged that the Fed is seeing emerging headwinds from the partial government shutdown in the U.S. and from elevated geopolitical uncertainties abroad. Williams told the New Jersey Bankers Association that the Fed will be patient and prudent in its approach to monetary policy.

We expect the Fed to leave interest rates unchanged at the next two FOMC meetings, maybe longer.



For a PDF version of this report, click here: Comerica Economic Weekly, January 18, 2019

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

Read More

Comerica Economic Weekly, January 11, 2019

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

U.S. economic data was mostly positive this week as the partial federal government shutdown extended through its third week. 

Recent commentary by Fed Chairman Jay Powell and his colleagues, and the minutes from the Federal Open Market Committee meeting of December 18/19 shows an important but subtle change in Fedspeak. Powell has used the word “patient” several times recently to describe the Fed’s attitude toward more rate hikes for 2019. “Patient” also shows up in the Fed minutes released this week. 

Recall that former Fed Chairwoman Janet Yellen also used the word “patient” to describe her attitude toward eventual rate hikes in early 2015. When pressed, Yellen said that being patient meant waiting a couple of meetings. Pressed further, Yellen implied that a couple meant about two. We should not hold Powell to a strict definition of patient or of a couple, but his choice of language appears to be purposeful. 

We expect the Fed to keep monetary policy unchanged at the upcoming FOMC meeting over January 29/30 after tightening in December. Being patient means that they would likely skip tightening over March 19/20 as well. If they raise the fed funds rate at the following meeting over April 30/May 1, that would allow them to break the cadence established over 2018 of one 25 basis point rate hike every other FOMC meeting. It would also re-activate the four “dead” meetings a year when the Fed Chair did not hold a press conference. Powell will have a press conference after all eight FOMC meetings this year, so we consider all eight meetings in 2019 to be “live”. 

The Consumer Price Index for December fell by 0.1 percent, dragged down by lower petroleum prices. The energy sub-index dropped by 3.5 percent for the month. Core CPI (less food and energy) increased by 0.2 percent for the third consecutive month. For the year ending in December, headline CPI was up a moderate 1.9 percent, while core CPI gained 2.2 percent, both close to the Fed’s symmetrical 2 percent target.

Labor data was good. Initial claims for unemployment insurance dropped by 17,000 for the week ending January 5, to hit 216,000. Continuing claims fell by 28,000, to hit 1,722,000 for the week ending December 29. The Job Opening and Labor Turnover Survey for November showed a dip in the job openings rate, to a still high 4.4 percent. The hiring rate eased to 3.8 percent. 

Business optimism was little changed in December, after falling in November according to the National Federation of Independent Businesses. The December survey says capital spending plans for 2019 have eased. 

The ISM Non-Manufacturing Index dipped from a strong 60.7 in November, to a still-positive 57.6 in December. Recall that the ISM Manufacturing survey also showed a similar dip for the month. In the December Non-MF survey, which captures the bulk of the U.S. economy, all ten reported sub-indexes were in positive territory, above 50. Most anecdotal comments were positive. Only one industry, mining, reported contraction for the month. 

According to the Mortgage Bankers Association, mortgage apps for purchase rose sharply in early January, up 16.5 percent, as mortgage rates eased.

Economic data from the Census Bureau is still MIA due to the federal government shutdown, so we have nothing to report about December international trade.

For a PDF version of this report, click here:  Comerica Economic Weekly, January 11, 2019

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

Read More

Comerica Economic Weekly, January 4, 2019

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

Worries about a cooler Chinese economy and Apple’s related downgrade of its 2019 sales forecast dominated financial news this week. Then the whale of a jobs report for December surfaced Friday morning.

The Caixin China General Manufacturing Index for December fell to 49.7, just below the 50 break even mark, indicating slightly deteriorating conditions there. Other consumer-related metrics for China appear to be weakening as well. A significant slowdown in China’s “real” economy would come with spillover effects for its key trading partners as well as for financial markets globally. 

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 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. The very strong official BLS payroll data was corroborated by a strong ADP Report for December that showed a net gain of 271,000 private-sector jobs for the month. 

If the partial federal government shutdown extends deep into next week we could see a significant drag on January payroll totals.

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. 

Construction spending data for November was not released this week as scheduled, due to the federal government shutdown which has halted updates to the Census Bureau’s website. International trade and factory orders for November may not be released next week as scheduled if the shutdown continues through the week.  The BLS website is functioning through the shutdown.

For a PDF version of this report, click here:  Comerica Economic Weekly, January 4, 2019

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

Read More

Comerica Economic Weekly, December 21, 2018

December 21, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

The big news this week was the Federal Reserve’s policy announcement and related information delivered on Wednesday. We got the 25 basis point rate hike as expected. We saw the dot plot shift down as expected. But the overall tone from the Fed on Wednesday was more hawkish than many financial analysts expected. Financial markets reacted negatively, reinforcing a stock market correction that is now well into its third month.

As it now stands, either the Federal Reserve is  wrong in anticipating a strong economy over the next two years that will require three more 25 basis point rate hikes, or financial markets are collectively wrong in anticipating a weaker economy that will require only one more rate hike or no more rate hikes from this point forward. 

The Trump Administration continues to threaten a Federal government shutdown if border wall funding is not included in a continuing resolution spending bill. A short-term shutdown (less than two weeks), beginning this weekend would impact some federal workers but have only a minor impact on the economy. A longer shutdown could sour business and consumer confidence. 

Nominal personal income increased by 0.2 percent in November. Inflation was tepid, with the PCE Price Index gaining 0.1 percent, held in check by lower energy prices. After adjusting for inflation and taxes, real disposable income gained a moderate 0.2 percent for the month. Real consumer spending increased by a respectable 0.3 percent bringing the personal saving rate down a tenth, to 6.0 percent. 

New orders for durable goods increased by 0.8 percent in November after dropping by 4.3 percent in October. Core orders were soft. New orders for non-defense capital goods excluding aircraft dipped by 0.6 percent.

Q3 real GDP growth was revised down slightly to 3.4 percent. Corporate profits increased in Q2 relative to Q3 on strength in non-financial corporation. The first estimate of Q4 GDP will come out at the end of January.

The Conference Board’s Leading Economic Index for November increased by 0.2 percent after falling by 0.3 percent in October. Both the Coincident and the Lagging Indexes increased in November as well. 

Initial claims for unemployment insurance increased by 8,000, to hit 214,000 for the week ending December 15. Continuing claims gained 27,000 for the week ending December 8, to hit 1,688,000. The levels for both series are still very low.

Existing home sales increased by 1.9 percent in November, the second consecutive gain. Lower mortgage rates this fall appear to be helping.  For the year ending in November, existing home sales are down 7.0 percent. 

Housing starts increased in November by 3.2 percent, to a 1,256,000 unit annual rate, supported by a surge in multifamily construction. Single-family starts declined for the third consecutive month. Permits for new residential construction increased by 5.0 percent in November, pushed by multifamily projects.

Builder confidence dipped in December according to the National Association of Home Builders. Their index fell four points, to 56, the lowest reading since May 2015.

According to the Mortgage Bankers Association the rate for a 30-year fixed-rate mortgage fell for the fourth consecutive week to 4.94 percent, for the week ending December 14. This is down from 5.17 percent  in early November. 

For a PDF version of this report, click here:  Comerica Economic Weekly, December 21, 2018

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

Read More

Comerica Economic Weekly, December 14, 2018

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

The economic data released this week is consistent with a moderate economic expansion in Q4. Financial markets are reacting negatively to weaker-than-expected industrial production from China. Industrial production in China was up 5.4 percent in November from a year earlier. 

Meanwhile, U.S. industrial production increased by 0.6 percent in November. The details are weaker than the headline. Manufacturing  output was unchanged for the month after slipping by 0.1 percent in October. Mining output was up by 1.7 percent. Utility output was up by 3.3 percent in November, boosted by cold weather. Overall capacity utilization ticked up to 78.48 percent and looks like it is nearing the top of its cycle. 

U.S. nominal retail sales for November increased by a modest 0.2 percent for the month despite very favorable conditions for consumers. The culprit was gasoline as the average monthly price for unleaded fell 6.5 percent in November to $2.70. December gasoline prices have declined even 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. We expect holiday shopping metrics to be good this season.

Manufacturing and trade inventories were up by 0.6 percent nominally in October. After a strong inventory gain in Q3 we expect that inventories will be a moderate drag on GDP in Q4. 

The 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. 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.   The energy sub-index for the PPI fell by 5.0 percent for the month. Outside of energy, prices were mixed. The core PPI (final demand less food, energy and trade) was still up by 2.8 percent over the previous 12 months. 

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 a year ago while purchase apps are down by just 0.2 percent. 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.

Initial claims for unemployment insurance decreased by a sizeable 27,000 for the week ending December 8, to hit 206,000. This erases the gains seen in the level of initial claims since early September. Continuing claims gained 25,000 for the week ending December 1, to hit 1,661,000. 

The National Federation of Independent Business’s Small Business Optimism Index eased in November to 104.8, still high but also its lowest reading since last March.

 

For a PDF version of this report, click here:  Comerica Economic Weekly, December 14, 2018

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

Read More

Comerica Economic Weekly, December 7, 2018

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

The economic data released this week is consistent with a moderate economic expansion in Q4. Most of the economic chatter surrounded trade, OPEC and the U.S. jobs report.

U.S. payrolls expanded by 155,000 net new jobs in November. The unemployment rate stayed at 3.7 percent. Wage pressure remained moderate. Average hourly earnings were up 0.2 percent for the month and 3.1 percent over the previous 12 months. The labor force participation rate was unchanged at 62.9 percent.

The U.S. international trade gap widened in October to -$55.5 billion. Imports rose by $0.6 billion while exports declined by $0.3 billion. The big news in international trade came during the G-20 summit last weekend. The leaders of the U.S., Mexico and Canada signed the new North America trade accord known as USMCA. Each country’s legislative body must still ratify the agreement into law. Also, it was announced that the U.S. and China have committed to a 90 day truce on imposing new tariffs to allow for more time to conduct negotiations.

The ISM Manufacturing Index unexpectedly climbed in November up to 59.3 after dipping in October to 57.7. A reading near 60 is a very positive indicator for manufacturing. The ISM Non-Manufacturing Index also improved for the month, up to 60.7. 

Total construction spending was little changed in October, down by just 0.1 percent for the month. Private residential construction spending dipped by 0.5 percent as new single-family construction faded. The U.S. housing market has cooled in 2018. The months’ supply of new single-family housing available for sale has grown every month since May. This will limit residential construction activity in the near-term. Private non-residential construction was down 0.3 percent for the month. 

Mortgage applications improved in the last two weeks of November after declining for the first half of the month. The composite index was up 2 percent for the week ending November 30 as refi apps grew by 6.2 percent. Purchase apps were up by 0.8 percent.

Initial claims for unemployment insurance eased by 4,000 for the week ending December 1, to hit 231,000. Initial claims have trended a little higher since September yet remain at a very low level indicating ongoing strength in the U.S. labor market. Continuing claims fell by 74,000 to hit 1,631,000 for the week ending November 24.

Auto sales went unchanged at a 17.5 million unit rate in November, stronger than we expected. Solid job growth, wage gains and consistent high consumer confidence are all supporting auto sales. Increasing finance costs and a cooling housing market are negatives for the industry.

OPEC agreed to a 1.2 million barrel per day production cut today. The announcement should bolster oil prices. WTI crude prices dipped from the mid-$70 range in October down to the low $50s in early December. It remains to be seen how compliant member countries will be with the agreement, including Iran which says that it is exempt from cuts.

The Federal Reserve remains on track to implement its fourth 25 basis point rate hike for 2018 at the conclusion of the FOMC meeting over December 18/19. We will receive a plethora of information from the Fed on the 19th, including a dot plot, economic forecasts and a post-meeting conference by FOMC Chairman Jay Powell.

For a PDF version of this report, click here:  Comerica Economic Weekly, December 7, 2018

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

Read More

Comerica Economic Weekly, November 30, 2018

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

The economic discussion this week focused on the Fed and on trade.

Several members of the Federal Open Market Committee delivered speeches or made statements this week, including FOMC Chair Jay Powell. Also, the minutes for the FOMC meeting of November 7/8 were released.Three important conclusions can be drawn from a week of Fedspeak. First, the Fed is comfortable with “gradualism” in the near term. Gradualism has come to mean a 25 basis point increase in the fed funds rate every other FOMC meeting. We expect to see the fourth such rate hike this year at the conclusion of the December 18/19 FOMC meeting. This will put the fed funds rate range at 2.25-2.50 percent on December 19. The implied probability of a December 19 rate hike has increased to about 83 percent.

The second important conclusion is that the Fed thinks that the fed funds rate range is getting closer to “neutral.” At “neutral,” it will be neither stimulative for the overall economy, nor restrictive. Of course, no one knows exactly where the neutral rate is. It can only be guessed at with a combination of objective and subjective reasoning. Also, one person’s “neutral” may be another person’s “restrictive.”

Third, the Fed is getting closer to changing the cadence of rate hikes. We expect the Fed to break the recent cadence of one 25 basis point rate hike every other FOMC meeting sometime in 2019. If conditions in key sectors, like housing, deteriorate, the Fed will break their cadence sooner and pause their tightening strategy. If inflation picks up, the Fed may break the cadence later. Bear in mind that beginning in January, Jay Powell will give a press conference at the conclusion of all eight FOMC meetings in 2019, not just at the current four. This will make all eight meetings “live,” with possibilities of a change in fed policy.

The U.S., Mexico and Canada have all signed their new trade agreement. It still must be approved by the legislative bodies of all three countries after a period of public comment and legislative debate.

Also, the Trump Administration has hinted that some movement is possible on the apparently deadlocked trade discussion with China. The G-20 meeting in Buenos Aires that is currently underway offers the opportunity for high-level discussion if that is what leaders want.

U.S. economic data this week was mixed. Housing-related data shows that many regional housing markets are clearly cooling. 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.

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.

General Motors announced the closures of 5 plants in the U.S. and Canada in 2019, impacting as many as 15,000 workers.



For a PDF version of this report, click here: Comerica Economic Weekly, November 30, 2018.

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

Read More

Comerica Economic Weekly, November 16, 2018

November 16, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Most U.S economic metrics continue to perform well heading into year end. 

The marquis number for the week was retail sales. Nominal retail sales for October increased by 0.8 percent, after dipping by 0.1 percent in September. The headline number was boosted by higher gasoline prices for the month. Service stations sales increased by 3.5 percent in October. They will fall in November with lower petroleum prices. Also, auto sales helped the headline number. Unit auto sales increased to a 17.5 million unit pace in October, which we believe will not be sustained in the months ahead. The dollar value of retail auto and parts sales increased by 1.1 percent in October. When we look at retail sales minus gas stations and autos, the numbers are less impressive, up 0.3 percent for the month. Still, most categories were positive for the month. Consumer conditions are generally strong heading into the heart of the holiday shopping season. 

Consumer prices were warm in October, according to the headline Consumer Price index, which increased by 0.3 percent for the month. This was the strongest monthly gain since last January. Energy was the culprit. The energy sub-index was up 2.4 percent for the month. We expect to see a sizeable decline in the energy price index in November, reflecting the fall in petroleum prices. Core CPI (all items less food and energy) was well behaved, gaining 0.2 percent in October. The 12-month gain in core CPI eased to 2.1 percent in October. 

Industrial production in October was a little weaker than expected, increasing by just 0.1 percent, the smallest monthly gain since May. There was some drag from hurricanes in September and October, but it was minimal, according to the Federal Reserve. Manufacturing output increased by 0.3 percent in October, despite less activity by auto makers. Vehicle assemblies fell from an  11.58 million unit annual rate in September, to 11.08 in October. Mining output eased by 0.3 percent and utility output declined by 0.5 percent for the month. Overall capacity utilization slipped to 78.4 percent in October. 

Initial claims for unemployment insurance bumped up by 2,000 for the week ending November 10, to hit a still-low 216,000. Continuing claims jumped up by 46,000 for the week ending November 3, to hit a still-very-low 1,676,000. 

Mortgage applications continued to slide in the week ending November 9. The weekly composite index was down by 3.2 percent as refi apps fell by 4.3 percent and purchase apps fell by 2.3 percent. These numbers are not seasonally adjusted, and so we expect to see some seasonal losses as we head into the winter months. Also, rising interest rates should be expected to put a damper on refi apps. However, purchase apps, which correlate with home sales, are soft. On a four-week moving average basis, purchase apps are down 1 percent from this time last year. 

Small business optimism remained high in October, according to the National Federation of Independent Businesses. Their business optimism index eased slightly to 107.4, still within the high range seen consistently over the last two years. Most indicators in the NFIB survey continue to be positive, including hiring plans and capital spending plans. Earnings expectations were slightly negative.  Earnings and profits may see more pressure as wages and borrowing costs increase next year.

For a PDF version of this report, click here: Comerica Economic Weekly, November 16, 2018

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

Read More

Comerica Economic Weekly, November 9, 2018

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

Most U.S economic metrics released over the last week were well behaved, with one notable exception.

The Producer Price Index for October, came in much warmer than expected, gaining 0.6 percent for the month. The hot October PPI data broke a string of three consecutive sedate months for producer inflation. The glaring headline brought fears of inflation to mind given the current mix of trade tariffs, rising wage rates and higher interest rates.

However, it was energy  that drove the headline PPI higher, counterintuitively since oil prices have been sliding recently. The energy sub-index for PPI Final Demand Goods was up by 2.7 percent in October after falling by 0.8 percent in September. Crude oil prices climbed  through late September into early October, with WTI crude briefly passing $76 per barrel on October 3. This lifted the monthly average oil price in October relative to September before oil prices began their recent slide. 

We expect oil prices to be a major drag on the PPI in November. As of November 9, WTI crude was down to  near $59 per barrel. Non-oil components of the PPI were sedate in October, as they have been in recent months.

Labor market indicators remain positive. Initial claims for unemployment insurance eased by 1,000 for the week ending November 3, to hit 214,000. Continuing claims dropped by 8,000 for the week ending October 27, to hit 1,623,000. 

The Job Openings and Labor Turnover Survey (JOLTS) for September showed a small tick down in the rate of job openings, to a still-strong 4.5 percent. Likewise, the hiring rate and the separations rate also ticked down slightly to still-strong rates.

The ISM Non-Manufacturing Index for October dipped from a very strong 61.6 in September to a still-strong 60.2 in October. All 17 reporting industries expanded in October. Anecdotal comments remains focused on uncertainty around international trade. 

Total mortgage applications dropped by 4.0 percent for the week ending November 2. Purchase apps lost another 5.0 percent after falling by 1.5 percent the week before. Refi apps give up 2.5 percent for the week. On a four-week moving average basis, refi apps were down 34.4 percent from a year ago, while purchase apps were down by 3.6 percent. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage climbed to 5.15 percent. 

Consumer credit levels remain well behaved. In September, revolving consumer credit was up by 3.8 percent over the previous 12 months. Non-revolving consumer credit was up by 5.2 percent over the year. 

The University of Michigan’s preliminary Consumer Sentiment Index for November eased by 0.3 to a still-positive 98.3. The index looks range-bound at a positive level over the course of 2018. We expect consumer sentiment to remain positive through the end of the year.

The Federal Open Market Committee meeting of November 7/8 was a nonevent for financial markets, as widely expected. We believe that the Fed remains on track to increase the fed funds rate range by 25 basis points at the next FOMC meeting over December 18/19. We look for the Fed to maintain “gradualism” by sitting out the January 29/30 FOMC meeting and then raising the fed funds rate range by another 25 basis points at the March 19/20 FOMC meeting. 

 

For a PDF version of this report, click here:  Comerica Economic Weekly, November 9, 2018 

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

Read More

Comerica Economic Weekly, November 2, 2018

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

The week ended on a positive note as U.S. job growth for October came in stronger than expected. 

U.S. payrolls expanded by 250,000 net new jobs in October. The 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 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. 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. The personal saving rate went down to 6.2 percent. It was as high as 7.4 percent in February of this year. That is not a bad number and the trend is unclear at this time. 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. 

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. 

The ISM Manufacturing Index slipped from a strong 59.8 in September to a still-good 57.7 in October. Nine out of ten sub-indexes are still above the break-even 50 mark, including new orders, production and employment. Of the 18 reporting industries, 13 said that they expanded in October. The four contracting industries were wood products, primary metals, nonmetallic products and fabricated metal products. 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 Q3, below the 3.0 percent annualized gain of Q2. On a year-over-year basis, productivity was up by 1.3 percent in 2018Q3, 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. 

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. 

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.

Auto sales increased in October to a 17.5 million unit rate. Strong consumer conditions appear to be supporting sales. Higher materials, labor and capital costs are headwinds for the auto industry. 

The Case-Shiller U.S. National House Price Index increased by 5.8 percent year-over-year in August.

For a PDF version of this report, click here:  Comerica Economic Weekly, November 2, 2018

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

Read More

Comerica Economic Weekly, October 26, 2018

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

The big news for the week was the ongoing correction in global equity markets. The S&P 500 has lost nearly 10 percent from October 3 through October 26.

Economic data at the end of October is a good news/bad news story. The good news is that many indicators remain at very positive levels. The bad news is that there are some weak spots in the U.S. economy that are getting more worrisome. 

This good news/bad news story is apparent in the first estimate of Q3 GDP. Real gross domestic product increased at a moderate-to-strong 3.5 percent annualized rate in the third quarter, following a stronger 4.2 percent quarter in Q2. 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. However, 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. 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. Trade subtracted 1.8 percentage points from real GDP growth in Q3 as imports surged. Federal government spending 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 as total government spending added 0.6 percentage points to Q3 real GDP growth. The surge in total government spending in Q3 is not sustainable.

New orders for durable goods increased by 0.8 percent in September after a 4.6 percent gain in August. As usual, commercial and defense aircraft orders added volatility to the headline numbers. Core new orders (nondefense capital goods excluding aircraft) eased by 0.1 percent in September after a 0.2 percent loss in August. 

Initial claims for unemployment insurance increased by 5,000 for the week ending October 20, to hit 215,000. New claims appear to be edging up after hitting exceptionally low levels in September. Continuing claims for unemployment insurance dipped by 5,000 for the week ending October 13, to hit 1,636,000, still an exceptionally low number. 

New home sales fell by 5.5 percent in September, to a 553,000 unit annual rate. This is the weakest monthly rate since March 2016. Sales fell by 40.6 percent in the Northeast. New home sales fell in the South Region by just 1.5 percent despite Hurricane Florence. The Midwest saw a 6.9 percent increase while the West dropped by 12.0 percent. The months’ supply of new homes for sale jumped to 7.1 months’ worth. The median sales price of a new home in September was down by 3.5 percent over the previous 12 months. 

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 down 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.

For a PDF version of this report, click here:  Comerica Economic Weekly, October 26, 2018

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

Read More

Comerica Economic Weekly, October 11, 2018

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

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. 

The Producer Price Index for September showed a 0.2 percent monthly gain. Food and energy prices in the final demand index both dropped. Final demand goods less food and energy increased by 0.2 percent. Over the 12 months ending in September, the Producer Price Index for Final Demand was up by 2.6 percent, well below its peak y/y gain of 3.4 percent from last June. 

The Consumer Price Index for September gained just 0.1 percent. 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 y/y 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. 

Small business optimism remained strong in September. The National Federation of Independent Business’s Small Business Optimism Index eased slightly for the month, but stayed elevated near its 45 year high. Small businesses think that business conditions are good and this is a good time to expand. Sales and earnings expectations are strong. Planned price increases this summer are not outside of historical norms. Job openings are high but businesses are struggling to fill open positions. 

Total mortgage applications fell by 1.7 percent for the week ending October 5. Purchase apps were down by 1.1 percent for the week, breaking a string of five consecutive weekly gains. Refi apps fell by 2.6 percent after a small 0.1 percent loss the previous week. On a four-week moving average basis, purchase apps are up 3.4 percent from this time last year and refi apps are down by 34.8 percent. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage increased to 5.05 percent. 

The Federal Reserve remains on track to keep the fed funds rate unchanged at the upcoming FOMC meeting over November 7/8. We expect to see a 25 basis point increase in the fed funds rate announced at the conclusion of the last FOMC meeting of this year over December 18/19. A December rate hike would be the fourth 25 basis point rate hike in 2018. 

We look for three more 25 basis point rate hikes in 2019. We believe that the fed will maintain their cadence of a 25 basis point interest rate hike every other FOMC meeting through mid-year 2019. They will leave the fed funds rate unchanged over January 29/30. The next rate hike looks set for March 20. With that cadence they will leave the fed funds rate range unchanged over April 30/May 1 and raise it by 25 basis points again over June 18/19.

For a PDF version of this report, click here:  Comerica Economic Weekly, October 11, 2018

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

Read More

Comerica Economic Weekly, September 28, 2018

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

 Some estimates for Q3 real GDP growth had been flying high after the 4.2 percent growth rate was reported for Q2. An inventory rebound in Q3 could still push GDP growth above the strong Q2 rate. However, data from this week suggests that Q3 growth is more likely to step down, closer to 3 percent. We published a 3.1 percent real GDP growth rate for Q3 in our September U.S. Economic Outlook.

The culprit is trade. The advance trade data for August shows that the merchandise trade deficit (excluding services) widened by $3.8 billion. It now looks like trade will subtract about a full percentage point from real GDP growth in Q3.

There is still upside risk from inventories. Nominal wholesale inventories were up by 0.8 percent in August, while retail inventories gained 0.7 percent.

Nominal personal income was up by 0.3 percent in August, netting a 0.2 percent gain for real disposable income. Real consumer spending increased by 0.2 percent in August after a 0.3 percent gain in July. It looks like growth in consumer spending for Q3 will ease from the strong 3.8 percent rate from Q2. The Personal Consumption Expenditure (PCE) Price Index for August was sedate, increasing by 0.1 percent for the month while the core PCE prices were even cooler, unchanged for the month.

New orders for durable goods rebounded in August, up 4.5 percent after falling by 1.2 percent in July. Both defense and commercial aircraft orders generated the volatility. Core durable goods orders, nondefense capital goods excluding aircraft, eased by 0.5 percent.

Initial claims for unemployment insurance bumped up by 12,000 for the week ending September 22, to hit a still-very-low 214,000.  Both North Carolina and South Carolina showed a strong increase in initial claims, likely as a result of Hurricane Florence. Continuing claims increased by 16,000 for the week ending September 15, to hit 1,661,000.

The 12-month increase in the Case-Shiller U.S. National House Price Index slowed to 6.0 percent in July. The 20-city data showed some cities slipping in July. Dallas house prices lost 0.1 percent for the month.

New homes sales improved in August, up 3.5 percent to a 629,000 unit annual rate. The trend still looks soft. The inventory of new homes for sales eased to a moderate 6.1 months’ worth. The median sales prices of a new home fell to $320,200. This does not account for size and quality changes.

Consumers felt good in September. The Conference Board’s Consumer Confidence Index showed a noticeable 3.7 point increase to 138.4 in September, on the heels of a large increase in August. This metric is hovering near an 18-year high.

The Federal Reserve raised the fed funds rate range to 2.00-2.25 percent as expected. They also kept the Interest Rate on Excess Reserve slightly below the fed funds rate, raising it to 2.20 percent. In October the Fed will ramp up the amount of maturing bonds that it will allow to roll off its balance sheet, to a maximum rate of $50 billion per month. The Fed has not disclosed its final target for bond holdings.

Less reinvestment by the Fed, the end of net asset purchases by the European Central Bank by the end of this year, and then ECB rate increases after mid-year 2019 will all put upward pressure on global bond yields.

 

For a PDF version of this report, click here:  Comerica Economic Weekly, September 28, 2018

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

Read More

Comerica Economic Weekly, September 21, 2018

September 21, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Economic indicators this week showed ongoing momentum for most of the U.S. economy. However, most housing market indicators were flat to down this summer, showing little positive momentum for that sector which has been an important accelerator for the U.S. economy in previous business cycles. 

The Conference Board reported a moderate 0.4 percent increase in their Leading Economic Index for August. 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. 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. 

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. 

Builder confidence was unchanged in September according to the National Association of Home Builders. Builders report continued demand and a recent break in record-high lumber prices.

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. 

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 tight labor market conditions.

We expect the Federal Reserve to raise the fed funds rate range by 25 basis points on September 26 and to issue some new guidance for early 2019. 

For a PDF version of this report, click here:  Comerica Economic Weekly, September 21, 2018

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

Read More

Comerica Economic Weekly September 14, 2018

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

Inflation indicators this week showed easing year-over-year price gains. Business optimism soared and labor indicators remained strong. Retail sales were soggy but industrial production was firm.

The Producer Price Index for Final Demand declined by 0.1 percent in August, despite tight labor markets and also despite new import tariffs. 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.

The 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 moderate  monthly gains, the year-over-year changes in the CPI will continue to ease.

According to the National Federation of Independent Business, business optimism is booming. Their Small Business Optimism Index climbed to 108.8 in August, setting a new high in the index’s 45-year history. Both job creation plans and unfilled job openings set new records in August.

The Job Openings and Labor Turnover Survey (JOLTS) for July showed an ongoing strong 4.4 percent job openings rate for the month. Hiring remained strong and quits remained high.

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 a very low 204,000. Continuing claims fell by 15,000, to hit 1,696,000 for the week ending September 1.

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. 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.

Mortgage applications for refis fell by 5.9 percent in early September. On a four-week moving average basis, refi apps are down almost 38 percent from a year earlier. Purchase apps 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.

Manufacturing and trade inventories gained 0.6 in July, supportive of Q3 GDP.

For a PDF version of this report, click here: Comerica Economic Weekly September 14, 2018

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

Read More

Comerica Economic Weekly September 7, 2018

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

U.S. economic indicators from this week were consistent with ongoing moderate-to-strong economic growth in the third quarter. Labor market indicators showed good and improving conditions for workers.

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 ISM Non-Manufacturing Index increased in August to 58.5. The production, employment and new orders sub-indexes 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. 

The ISM Manufacturing Index jumped in August, gaining 3.2 percentage points to hit 61.3, its highest level since may 2004. Seven out of 10 sub-indexes improved in August, including new orders, production and employment. The Prices Index eased to a still-hot 72.1, suggesting that inflationary pressure is persistent among manufacturers. 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. 

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.

Total construction spending for July edged up by just 0.1 percent. The U.S. international trade gap widened in July to -$50.1 billion, from -$45.7 billion in June. Exports dropped by $2.1 billion in June, while imports increased by $2.2 billion. It is early in the quarter, but so far, trade looks like it will be a small drag on Q3 GDP. 

Unit auto sales eased to a 16.7 million unit rate in August, from a 16.8 million unit rate in July according to Autodata. The overall trend in auto sales since late 2015 looks flat to down slightly.

Total mortgage applications eased by 0.1 percent for the week ending August 31 as purchase apps gained 0.6 percent and refi apps lost 1.4 percent. Purchase apps are up just 0.4 percent over a year ago on a four-week moving average basis. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage notched up to 4.80 percent. 

The positive ISM data from this week, along with the jobs report showing stronger average hourly earnings numbers, 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. 

For a PDF version of this report, click here: Comerica Economic Weekly September 7, 2018

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

Read More

Comerica Economic Weekly August 31, 2018

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

U.S. economic indicators from this week remained consistent with ongoing moderate economic growth in the third quarter.

July income and spending data shows healthy real income growth at the start of the third quarter, accompanied by reasonable real consumer spending gains. Nominal income was up by 0.3 percent in July. 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. The Personal Consumption Expenditure (PCE) Price Index was up by just 0.1 percent in July. Excluding food and energy, the core PCE Price Index was up by 0.2 percent.

Second quarter real GDP growth was revised up slightly, to a 4.2 percent annualized rate. Corporate profits were strong in Q2. Profits of domestic financial corporations jumped up by $16.7 billion in Q2, while profits at domestic nonfinancial corporations increased by $63.6 billion.

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.

Pending home sales for July fell by 0.7 percent, the seventh consecutive drop in that index. Two factors appear to be holding the housing market back. One is declining affordability, driven by both rising house prices and rising mortgage rates. The other factor is lack of inventory. The inventory of available houses for sale per capita is quite low.

Mortgage applications have weakened along with sales of new and existing houses. Data from the week ending August 24 show that on a four-week moving average basis, purchase apps are down 7.3 percent from a month ago, and they are down 0.5 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage eased to 4.78 percent in late August, down 6 basis points from a month earlier, and up 67 basis points from a year earlier.

The Case-Shiller house price data from June shows some signs of cooler markets. The national house price index was up by 6.3 percent over the previous 12 months, down a little from the recent peak year-over-year gain of 6.5 percent from March. House prices in Detroit and New York City showed small monthly declines in June, while Chicago was unchanged. Western cities like Las Vegas, Seattle and San Francisco are still showing the strongest year-over-year gains.

The Conference Board’s Consumer Confidence Index increased in August by 4.3 percent, to 133.40, the highest level since October 2000.

According to the CME Group, the implied probability of a 25 basis point fed funds rate hike at the conclusion of the upcoming September 25/26 FOMC meeting is about 98 percent. If the Fed did anything other than a 25 basis point increase in September, financial markets would be very surprised. The implied odds of a November 8 fed funds rate hike fall to 3 percent. The odds of the fourth fed funds rate hike in 2018 happening on December 19 have increased to 70 percent.

For a PDF version of this report, click here: Comerica Economic Weekly August 31, 2018

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

Read More

Comerica Economic Weekly - August 24, 2018

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

U.S. economic indicators from this week were consistent with ongoing moderate economic growth in the third quarter. However, housing-related metrics for July were clearly weak. We expect that residential fixed investment will not be a significant boost to overall GDP growth in the second half of this year, the way it has been in previous business cycles.

Many (including us) have touted healthy consumer conditions recently. The positive effects of the strong labor market, high consumer confidence and tax reform are beyond dispute. Households are generally saving more and they are not overextended on credit. However, there are some vulnerabilities in the consumer sector. The soft housing market and the possibility of further declines in auto sales suggest that some aspects of consumer spending may be weaker than expected this fall.

Home sales continued their summer slump in July. New home sales fell by 1.7 percent in July, to a 627,000 unit annual rate. The inventory of new homes available increased to a moderate 5.9 months’ worth, looser than the 4.9 months’ worth of inventory from last November.

Existing home sales fell by 0.7 percent in July, to a 5,340,000 unit annual rate. This was the fourth consecutive monthly decline. The inventory of existing homes for sale in July remained tight at 4.3 months’ worth. The median sales price of an existing home was up by 4.5 percent in July over the previous 12 months, according to the National Association of Realtors.

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

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

New orders for durable goods fell by 1.7 percent in July as both defense and nondefense aircraft orders exhibited normal volatility. Core orders, nondefense capital goods excluding aircraft, increased by 1.4 percent, boosted by a strong gain in orders for computers.

The Federal Reserve released the minutes of the July 31/August 1 Federal Open Market Committee meeting. Economic conditions at the time of the meeting were considered strong. It was noted by a number of meeting participants that businesses were concerned about the impact of tariffs on capital spending and hiring, but most businesses had not yet revised their plans due to new trade policy. There was also discussion about the impact of tariffs on inflation. The committee view was supportive of further gradual increases in the fed funds rate, consistent with a broad expectation of two more 25 basis point fed funds rate hikes this year.

Federal Reserve officials attended the annual retreat at Jackson Hole this week. This is not an official FOMC meeting, but at times there have been significant monetary policy developments as a result of this meeting. Fed Chair Jay Powell doubled down on “gradualism” in his speech at the conference.

For a PDF version of this report, click here: Comerica Economic Weekly August 24, 2018

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

Read More

Comerica Economic Weekly August 10, 2018

August 10, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic indicators from this week were generally positive and consistent with ongoing moderate economic growth in the third quarter. Price metrics showed warm inflation on a year-over-year basis, but recent monthly gains have been muted. Labor data remains consistent with strong hiring.

The headline Consumer Price Index increased by a moderate 0.2 percent in July, after a modest 0.1 percent increase in June. Energy was a drag in July. From February through July, the CPI has had an average monthly gain of just 0.1 percent. As of July, the 12-month increase in the CPI was 2.9 percent, and this is stoking fears of inflation. However, the recent weaker monthly increases will put a cap on the year-over-year gains this fall. 

The Producer Price Index for Final Demand was unchanged in July. This was the second month of moderating price gains after a 0.5 percent surge in the PPI in May. In July we see no evidence of broad-based price pressure on industries due to tariffs. The sedate PPI report for July does not mean that there is no pressure from tariffs on individual companies, it simply means that it is not showing up in the headline PPI series. Headline PPI was up 3.3 percent in July over the previous year. We expect the 12-month gain in the PPI to decrease this fall.

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

The Job Opening and Labor Turnover Survey for June showed strong labor market conditions. The job opening rate stayed at 4.3 percent, just below the all time high (since December 2000) set in April. The hiring rate ticked down to a still strong 3.8 percent in June. The quits rate remained elevated at 2.3 percent, where it has been since March. A high quits rate is regarded as a sign that workers are confident they can get another job. 

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

The Federal Reserves Senior Loan Officer Opinion Survey (SLOOS) for July showed mostly positive banking conditions. The net percent of banks tightening standards for C&I loans went further into negative territory (meaning easing standards). The net percent of banks reported stronger demand for C&I loans improved. Demand for commercial real estate loans remains soft. 

Wholesale inventories increased by just 0.1 percent nominally in June. This is backward looking data that implies little change to the Q2 GDP estimate. However, the weak inventory build of Q2 is relevant for the current quarter. It raises the potential for a stronger-than-expected inventory build in Q3, which is an upside risk factor for our 2.7 percent real GDP growth forecast for Q3. The Atlanta Fed’s GDPNow forecast for Q3 is significantly higher, at 4.3 percent annualized growth.

For a PDF version of this report, click here: Comerica Economic Weekly August 10, 2018

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

Read More

Comerica Economic Weekly August 3, 2018

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

U.S. economic indicators from this week were generally positive and consistent with ongoing moderate economic growth in the third quarter. Also this morning we see another escalation in the trade war with China. So far, most U.S. economic data shows little evidence of a negative impact from trade disputes. However, as the tariffs and counter-measures broaden in scope, increase in magnitude and extend over time, there will be more and more measurable effects.

July payrolls increased by 157,000 net new jobs, below expectations given the stronger 219,000 net gain seen in the July ADP employment numbers. The good news in today’s official Bureau of Labor Statistics job count was the positive revision of 59,000 more jobs over May and June. If we add the revision for May and June to the July total gain, that puts us up 216,000 jobs from last month’s estimate. The U.S. unemployment rate ticked back down to 3.9 percent. Average hourly earnings were up 0.3 percent for the month, warm but not hot. Over the last year, average hourly earnings were up 2.7 percent. The Consumer Price Index increased by 2.8 percent over the twelve months ending in June, so most workers are not seeing real gains. 

The U.S. international trade gap widened in June, by $3.2 billion, to negative $46.3 billion. Exports of goods decreased by $1.7 billion while exports of services eased by $0.2 billion. Imports of goods were up by $1.4 billion. Imports of services were little changed, down $0.1 billion in June. The trade result from June should have little impact on the Q2 real GDP estimate of 4.1 percent real growth.

Auto sales eased from a 17.2 million unit rate in June, to a 16.8 million unite rate in July. We look for a gradual decline in auto sales over the next year as affordability drops. 

The ISM Manufacturing Index dropped just over two points in July, from a robust 60.2, back to a still-strong 58.1, indicating ongoing expansive conditions for U.S. manufacturers. The new orders, production and employment sub-indexes were all in expansion territory. 

The ISM Non-Manufacturing Index fell from 59.1 in June to 55.7 in July. The business activity/production sub-index cooled noticeably from 63.9 in June, to 56.5 in July, which is still a positive number. 

The income and spending data was revised along with the recent GDP revision. There was a major change to the personal saving rate, which alters the story about U.S. consumers. We now see a fairly flat saving rate, hovering around 7 percent, since 2013. This implies that consumers are not over-extended, and they can keep spending without setting up a debt overhang-correction cycle. 

The Case-Shiller U.S. National House Price Index was up by 0.4 percent for the month in May, gaining 6.4 percent over the previous 12 months. Most of the 20 cities tracked showed monthly price increases. Western cities still show stronger gains. Seattle topped the 20-city list, increasing by 1.4 percent in May. 

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

For a PDF version of this report, click here: Comerica Economic Weekly August 3, 2018

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

Read More

Comerica Economic Weekly July 27, 2018

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

U.S. economic indicators from this week were mixed. Today’s GDP print for Q2 was a cause for celebration for the Trump Administration, but home sales for June were sobering.

Real gross domestic product increased at a 4.1 percent annualized rate in Q2, about where we expected. Consumers did their part, increasing real spending at a 4.0 percent annual rate, after a nearly flat first quarter. This is the strongest acceleration in consumer spending since the end of 2014, coinciding with comprehensive tax reform. Business investment was solid, increasing at a 7.3 percent annualized rate in Q2, after a strong 11.5 percent gain in Q1. Surprisingly, real inventories were a drag in Q2, declining by $6 billion ($2012) and subtracting a full percentage point off of headline GDP growth. Real exports accelerated in Q2, growing at a very strong 9.2 percent annual rate while imports bumped up at a 0.5 percent annual rate. Net trade added 1.1 percent to real GDP growth in Q2. Total government spending increased at a 2.1 percent annual rate in Q2, driven by a strong 5.5 percent gain in federal defense spending.

New orders for durable goods increased by 1.0 percent in June after easing through April and May. Most categories were positive for the month.

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

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

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

Mortgage applications eased by 0.2 percent for the week ending July 20. Purchase apps lost 1.0 percent while refi apps gained 0.9 percent. Purchase apps are still up 2.3 percent over a year ago on a four-week moving average basis. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage remained at 4.77 percent.

The European Central Bank left monetary policy unchanged at the meeting ending July 26. Mario Draghi, reiterated the central bank’s commitment to winding down asset purchases by the end of 2018.

For a PDF version of this report, click here: Comerica Economic Weekly July 27 2018

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

Read More