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.  

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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.  

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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.  

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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.  

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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.  

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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.  

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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.

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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.  

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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.
 

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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.

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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.  

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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.   

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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.

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Comerica Economic Weekly July 20, 2018

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

U.S. economic indicators from this week were generally healthy, with the notable exception of residential construction. 

Fed Chairman Jay Powell delivered his semi-annual congressional testimony Tuesday and Wednesday. Powell listed job growth, rising after-tax incomes, household optimism, business investment and rest-of-world growth as positives for the U.S. economy. Powell expects the Fed to keep gradually increasing the fed funds rate. 

Powell was also asked about how he views the flattening of the Treasury bond yield curve. Powell downplayed the significance of the flatter yield curve. Separately, former Fed Chairman Ben Bernanke also said this week that it would be a mistake to think that the flattening of the yield curve signals a looming recession. 

The Federal Reserve’s Beige Book for July showed that manufacturers in all Federal Reserve Districts expressed concern about trade tariffs. Many Districts reported higher prices and supply chain disruptions attributable to new trade policies. 

The Conference Board’s Leading Economic Index advanced by 0.5 percent in June, after no change in May. New manufacturing orders were strong in June, pushing the index higher. The Coincident Index increased by 0.3 percent in June as did the Lagging Index.

Headline retail sales numbers for June were positive, but the components were mixed. Retail sales for June increased by 0.5 percent, a little below expectations given higher gasoline prices and stronger unit auto sales for the month. Core retail sales were up by 0.3 percent.

Total industrial production increased by 0.6 percent in June. Manufacturing output increased by 0.8 percent for the month, with a bounce-back in motor vehicle output. Nondurable manufacturing was generally more sedate, with the category increasing production by just 0.1 percent in June. Mining output increased by 1.2 percent in June, its fifth consecutive strong monthly gain, consistent with the upward trend in oil prices this year. Utility output fell by 1.5 percent in June. We expect utility output to bounce back this month as the early July heat wave on the East Coast boosted demand for air conditioning. Overall capacity utilization is again approaching the cyclical highs from mid-2014. 

Residential construction activity cooled significantly in June. Total housing starts dropped by 12.3 percent, to a 1,173,000 unit annual rate. Both single-family and multifamily starts were weak. Total residential building permits for new construction fell by 2.2 percent in June. We do not have a good explanation for the weak June starts numbers. This report will be heavily scrutinized next month.

According to the National Association of Home Builders, builder confidence was little changed in early July, near the strong 2017 average. 

Initial claims for unemployment insurance fell by 8,000 for the week ending July 14, to hit 207,000, the lowest level since December 1969. Continuing claims gained 8,000, to hit 1,751,000 for the week ending July 7.

The Federal Reserve will leave interest rates unchanged at the next Federal Open Market Committee meeting over July 31/August 1. We expect to see a 25 basis point rate hike on September 26. According to the CME Group, the implied odds of a fourth 25 basis point rate hike in December are about 54 percent.

For a PDF version of this report, click here: Comerica Economic Weekly July 20 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.  

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Comerica Economic Weekly July 13, 2018

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

Headlines this week were more political than economic, contributing to an increasing sense of uncertainty about international trade and geopolitical maneuvering. Looking back, the Economic Policy Uncertainty Index actually decreased in June after a strong increase in May. We expect to see the EPU Index increase in July reflecting rising trade tensions.

U.S. economic indicators from this week were solid. So far, there is little hard evidence that trade uncertainty is causing meaningful drag on the U.S. economy. Inflation data from June was mixed, showing warmer upstream price pressure. Other metrics are consistent with our view that the U.S. economy was strong in the recently completed second quarter, and enters the third quarter with good momentum.

The Producer Price Index for Final Demand increased by 0.3 percent in June. The average monthly gain in the headline PPI was 0.22 percent in 2017. In 2018, the average monthly gain has been higher at 0.30 percent.The ramp-up in producer price inflation is evident in the year-over-year comparison, now showing a 3.4 percent increase. Excluding food, energy and trade, the core PPI for Final Demand also gained 0.3 percent in June, and was up 2.7 percent over the previous 12 months.

The Consumer Price Index increased by a sedate 0.1 percent in June. Over the previous 12 months, headline CPI is up noticeably, by 2.9 percent. According to AAA, the national average unleaded gasoline price increased to $2.89 per gallon today, still below the $2.91 price from a month ago. The price for gasoline one year ago was $2.26 per gallon. Excluding food and energy, core CPI was up by 0.2 percent in June, and was up by 2.3 percent over the previous 12 months.Import prices fell by 0.4 percent in June, despite some higher import tariffs. Energy was part of the decline, but all import prices, excluding fuel, fell by 0.3 percent.

According to the National Federation of Independent Business, small business optimism eased a little in June, but was still near its historical high.

Mortgage applications increased by 2.5 percent for the week ending July 6. Purchase apps were up by 6.5 percent after little change the week before. Refi apps fell by 3.8 percent, the third consecutive weekly decline. Based on a four-week moving average, purchase apps are up 2.6 percent from a year ago, while refi apps are down by 27.2 percent. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage ticked down to 4.76 percent.

Labor data this week was strong. The Job Openings and Labor Turnover Survey (JOLTS) for May showed ongoing robust job openings and hiring.

Initial claims for unemployment insurance fell by 18,000, to hit 214,000 for the week ending July 7. Continuing claims fell by 3,000, to hit 1,739,000 for the week ending June 30. Labor market indicators continue to show strong conditions, with no signs of faltering.

We expect the Federal Reserve to leave interest rates unchanged at the next Federal Open Market Committee meeting over July 31/August 1. We look for the next 25 basis point fed funds rate hike at the conclusion of the September 25/26 FOMC meeting.

 

For a PDF version of this report, click here:  Comerica Economic Weekly July 13 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.  

 

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Comerica Economic Weekly June 29, 2018

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

As the second quarter closes out, the U.S. economy looks strong despite a growing sense of uncertainty about trade. The Economic Policy Uncertainty Index for the U.S. increased in May. This cannot be traced back specifically to trade, it likely also reflects tax reform, changes in government spending and a widening dispersion of views by professional forecasters.

U.S. real GDP growth for the first quarter was revised down, for the second time, now showing 2.0 percent real growth. Not far from our forecast of 1.6 from April. For the nearly complete second quarter, we expect to see much stronger real GDP growth, near 4.0 percent.

The Advance Report on Trade showed that the trade gap in goods narrowed by $2.5 billion in May. This supports our view that trade was a positive for GDP growth in Q2.

Personal income increased by 0.4 percent in May, driven by job growth and wage gains. Nominal consumer spending increased by 0.2 percent, bringing the personal saving rate back up to 3.2 percent. The PCE price index increased by 0.2 percent for the month, as did the core PCE price index. Real consumer spending was therefore unchanged in May. We expect to see an increase in real consumer spending in June.

Housing data released this week was mixed. New home sales bounced back in May, increasing by 6.7 percent, to a 689,000 unit rate. This is not quite a break-out number, but it does suggest that new home sales have some upward momentum. The months’ supply of new homes for sale dropped to 5.2 months’ worth.

Existing home sales for May eased by 0.4 percent. This is by far the largest component of home sales, suggesting the overall market is still supply-constrained. The inventory of existing homes for sale ticked up to a still-tight 4.1 months’ worth.

Home prices are still increasing. According to the Case-Shiller U.S. National House Price Index, prices were up 6.6 percent in April over the previous 12 months. Western cities are leading the charge.

Mortgage applications for the week ending June 22 fell by 4.9 percent with a 5.9 percent decline in purchase apps, more than erasing the previous week’s gain. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage ticked up one basis point, to 4.84 percent.

New orders for durable goods fell by 0.6 percent in May, held down by a decline in commercial aircraft orders. The core measure, non-defense capital goods excluding aircraft, was down by 0.2 percent for the month. Total new orders for all manufactured products are running about 10 percent ahead of one year ago, not adjusted for price increases.

Initial claims for unemployment insurance increased by 9,000, to hit 227,000 for the week ending June 23. Continuing claims remain very low, falling by 21,000 for the week ending June 16, to hit 1,705,000.

We expect the Federal Reserve to leave interest rates unchanged at the next Federal Open Market Committee meeting over July 31/August 1. We look for another 25 basis point rate hike at the conclusion of the September 25/26 FOMC meeting. The CME Group says that the odds of a September rate hike are about 72 percent.

For a PDF version of this report click here: Comerica-Economic-Weekly-06292018.

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

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Comerica Economic Weekly June 22, 2018

June 22, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic indicators from late June remain consistent with moderate-to-strong real GDP growth for the soon-to-be-complete second quarter.

The Conference Board’s Leading Economic Index was up by just 0.2 percent in May, with help from new business orders and interest rate spreads. This is the weakest monthly increase in the LEI this year. The Coinci-dent Index was also up 0.2 percent for the month, while the Lagging Index ramped up to a 0.5 percent gain, its strongest increase this year.

Housing-related data for May and June was mixed, showing that this is still a housing market that is following, rather than leading, the rest of the economy. Existing home sales ticked down by 0.4 percent in May, to a 5,430 million unit annual rate. Gains in the Northeast were offset by losses in the Midwest, South and West. The inventory of existing homes for sale increased slightly to 4.1 months’ worth, still a tight market. The median sales price of an existing home was up by 4.9 percent in May over the previous 12 months.

Total housing starts were up in May by 5.0 per-cent to a 1,350,000 unit annual rate. Single-family starts gained 3.9 percent, to a 936,000 unit rate. Multifamily starts increased 7.5 percent, to a 414,000 unit annual rate. With gains in both single-family and multifamily starts in May, this is the highest total starts number since July 2007. However, individually, both single-family and multifamily starts are still rangebound. The building per-mits data also looks rangebound. Total residential build-ing permits fell by 4.6 percent, to a 1,301,000 unit annual rate. Single-family permits eased by 2.2 percent, to an 844,000 unit rate. Multifamily permits fell by 8.8 percent, to a 457,000 unit annual rate.

The National Association of Home Builders’ build-er confidence survey ticked down two points in early June to 68, which matches the average for 2017. Builders are increasingly concerned about higher materials prices due to new trade tariffs. Higher mortgage rates are also eating into affordability.

Mortgage applications increased by 5.1 percent for the week ending June 15. Purchase apps were up by 4.3 percent after sliding through May. Refi apps were up by 6.1 percent for the week. The 4-week moving average of purchase apps was 0.4 percent below the year-ago lev-el. According to The Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage stayed at 4.83 per-cent in mid-June.

Unemployment insurance claims remained ultra-low. Initial claims dropped by 3,000 for the week ending June 16, to hit 218,000. Continuing claims regained 22,000 for the week ending June 9, to hit 1,723,000.

The Bank of England kept their key interest rates unchanged after this week’s Monetary Policy Committee meeting. They are also maintaining their rate of asset purchases.

We expect the Federal Reserve to leave U.S. mon-etary policy unchanged at the next Federal Open Market Committee meeting over July 31/August 1. We expect to see another 25 basis point rate hike at the conclusion of the September 25/26 FOMC meeting. According to the CME Group the implied odds of a December rate hike are hovering around 50 percent.

For a PDF version of this report, click here: Comerica-Economic-Weekly06222018

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

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Comerica Economic Weekly June 15, 2018

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

U.S. economic indicators from mid-June are consistent with moderate-to-strong real GDP growth for the soon-to-be-complete second quarter.  

Industrial production eased by 0.1 percent in May as manufacturing output dropped by 0.7 percent. Motor vehicle assemblies dropped almost 10 percent in May, to a 10.45 million unit rate. Autos and other big-ticket consumer items face higher financing charges as the Federal Reserve ramps up interest rates through next year.  

Retail sales for May increased by 0.8 percent, signaling healthy consumer activity. Excluding autos, retail sales gained a strong 0.9 percent for the month. Higher gasoline prices helped.  

The Consumer Price Index increased by 0.2 percent in May, as energy price gains were offset by moderating prices elsewhere. Over the previous 12 months, headline CPI is up by 2.8 percent. The core CPI, excluding food and energy, also increased by 0.2 percent for the month, and is up by 2.2 percent over the previous year.  The Producer Price Index for Final Demand increased by 0.5 percent in May, pushed by energy prices. It is now up 3.1 percent over the previous 12 months. 

The Import Price Index increased by 0.6 percent in May. Fuel import prices were up 4.9 percent in May. Nonfuel import prices were more sedate, gaining 0.2 percent for the second consecutive month, and were up 1.9 percent over the previous 12 months.  

Initial claims for unemployment insurance fell by 4,000 for the week ending June 9, to hit 218,000. Continuing claims dropped by 49,000, sinking to a very low 1,697,000 for the week ending June 2. These are exceptionally good numbers. 

Manufacturers’ and trade inventories were up by 0.3 percent nominally in March. Inventory accumulation has been generally below historical norms lately, a contributing factor for the sedate GDP growth of the post-recession period. The total inventory-to-sales ratio has leveled out after declining through 2016 and 2017.  

According to the National Federation of Independent Business, small business optimism increased in May to the second highest level in the past 45 years. The NFIB credits tax cuts and regulatory relief as key factors supporting increased small business optimism. The compensation sub-index hit a 45-year high in May. The net percent of businesses planning price increases climbed to 19 percent, the highest level since 2008.  

The European Central Bank left policy rates unchanged this week. According to the ECB, they will continue net asset purchases at a pace of €30 billion per month until the end of September 2018. The pace of net asset purchases will then drop down to €15 billion per month from October through December and then stop, as long as inflation remains in line with projections. Key ECB interest rates are expected to remain at present levels at least through the end of summer of 2019. 

The Federal Reserve raised the fed funds rate range 25 basis points, to 1.75-2.00 percent, on Wednesday. The new dot plot showed an upward shift in interest rate expectations, consistent with four 25 basis point rate hikes in 2018. According to the CME Group, the implied cumulative odds of at least four rate hikes this year have increased to 52 percent.

For a PDF version of this report, click here:  Comerica-Economic-Weekly06152018

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

 

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Comerica Economic Weekly | June 8, 2018

June 8, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic indicators in early June look consistent with moderate-to-strong real GDP growth for the soon-to-be-complete second quarter. We are forecasting a 3.6 percent real GDP growth rate for Q2, which we believe will be the strongest quarterly growth rate for the year.

The ISM Non-Manufacturing Index climbed to 58.6 in May. Anything above 50 indicates overall improving conditions. A number close to 60, or above, is considered strong. Fourteen out of fifteen industries reported growth in May, only information services reported a contraction. Anecdotal comments talked about strong demand, concern about input price increases and shortages of qualified labor.

The nominal U.S. international trade gap narrowed for the second consecutive month to -$46.2 billion in April. Total exports increased by $0.6 billion in April with help from petroleum exports. Imports declined by $0.4 billion with fewer cell phone imports after the surge last fall. With just one month of data for the second quarter, it looks like trade will be a positive factor for current quarter GDP.

Productivity growth for Q1 was revised down to just a 0.4 percent annualized rate. Unit labor costs for nonfarm businesses increased at a 2.9 percent annualized rate in the first quarter of this year, and were up by 1.3 percent since 2017Q1. The low productivity numbers imply that wage gains will cause many companies to increase their prices.

Mortgage applications jumped by 4.1 percent for the week ending June 1, with similar gains in both purchase and refi apps. This was the first increase in purchase apps in seven weeks, a hopeful but weak sign for home sales. According to the Mortgage Bankers Association the rate for a 30-year fixed rate mortgage eased to 4.75 percent at the end of May.

The price of West Texas Intermediate crude oil was stable near $65 per barrel this week, after approaching $75 per barrel in mid-May. Supply side concerns, which pushed prices up through April and May, were countered with concerns about softer demand from China, and a larger-than-expected gain in U.S. inventories.

The Job Opening and Labor Turnover Survey (JOLTS) data for April showed an ongoing strong job openings rate of 4.3 percent, maintaining the all-time high for that series reached in March. The hiring rate ticked back up to a strong 3.8 percent. The separations rate was unchanged at 3.6 percent, indicating ongoing worker confidence.

Initial claims for unemployment insurance dipped by 1,000 for the week ending June 2, to hit 222,000. Continuing claims gained 21,000, to hit 1,741,000 for the week ending May 26, still a very low number.

European bond markets were rattled by political uncertainty in Italy, ongoing signs of stress in the European banking sector and by increasing speculation that the European Central Bank will further decrease their asset purchases this year.

There is near universal expectation that the Federal Reserve will increase the fed funds rate range to 1.75-2.00 percent at the conclusion of the upcoming FOMC meeting of June 12/13.

For a PDF version of this report click here: Comerica-Economic-Weekly-06082018.

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

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Comerica Economic Weekly 05252018

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

U.S. economic indicators from April and May were mixed, but still consistent with ongoing moderate economic growth.

There has been increasing concern lately about the economic health of Europe. Europe is a significant source of global demand and a financial market nexus. So, it is important to monitor Europe even with our North American focus.

According to the IHS Markit Eurozone Purchasing Managers Index, European economic growth eased in May. The Eurozone PMI fell from 55.1 in April, to a still-positive 54.1 in May. This is not a red flag for the European economy, but it is a cautionary yellow flag. We believe that the European economy will continue to expand through this year and next, but the pace of growth will tend to ease going forward.

New U.S. orders for durables goods fell by 1.7 percent in April. As usual, commercial and defense-related aircraft orders were volatile. Core orders (nondefense capital goods excluding aircraft) increased by 1.0 percent, a positive signal.

Both existing and new home sales fell in April as mortgage interest rates ticked up, suggesting that the housing market may be more vulnerable to rising interest rates now than in previous business cycles. Existing home sales fell by 2.5 percent, to a 5.46 million unit rate, after increasing in February and March. Since the beginning of 2017, existing home sales have shown no consistent upward momentum. If anything, they have been on a slight downward trend.

New home sales fell by 1.5 percent in April, to a 662,000 unit rate. New home sales also look range-bound since late last year.

Mortgage applications fell by 2.6 percent for the week ending May 18 as both purchase and refi apps eased. This was the fourth consecutive weekly decline in purchase apps, and the fifth consecutive week with no increase. This is not good during the heart of the spring home buying season. According to the Mortgage Bankers Association the rate for a 30-year fixed rate mortgage increased to 4.86 percent, 69 basis points above its year-ago level.

Initial claims for unemployment insurance increased by 11,000 for the week ending May 19, to hit a still-low 234,000. Continuing claims increased by 29,000, to hit a still-very-low 1,741,000 for the week ending May 12. Claims are still within the very low range seen over the last year.

The minutes of the Federal Open Market Committee meeting of May 1-2 were released on Wednesday. The minutes were consistent with the widely expected 25 basis point fed funds rate hike due on June 13. Another item in the FOMC minutes received less news coverage. The Fed is considering resetting the spread between the fed funds rate target and the interest rate on excess reserves. It looks likely that the Fed will raise the fed funds rate range by 25 basis points on June 12, and raise the IOER rate by only 20 basis points, representing a net 5 basis point drop relative to the fed funds rate. This will be intended to keep the fed funds rate closer to its target.

For a PDF version of this report click here: Comerica-Economic-Weekly-05252018.

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

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Comerica Economic Weekly | May 18, 2018

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

U.S. economic indicators from mid-May look good and are consistent with ongoing moderate economic growth.

The Conference Board’s Leading Economic Index for April increased by 0.4 percent, matching the March increase. Both the Coincident Index and the Lagging Index increased by 0.3 percent in April. The three indexes cover a total of 21 economic metrics which, taken together, point to a solid second quarter and continued momentum in the third quarter.

Residential construction activity eased in April as multifamily starts and permits reset after gaining in March. Total starts fell by 3.7 percent to a 1,287,000 unit rate. Single-family housing starts were little changed in April, increasing by 0.1 percent for the month to an 894,000 unit rate. However, multifamily starts were down by 11.3 percent in April after a 13.6 percent increase the month before. Permits told a similar story. Since the first of this year, both single and multifamily construction met-rics have stalled. We expect to see more gains in single-family construction this year because so many markets are undersupplied.

According to the National Association of Home Builders, builder confidence in the market for new single-family homes remains high, rising two points in early May. The NAHB survey report also says that the high cost of lumber is hurting profitability for builders, making it difficult to produce lower priced entry-level homes.

Mortgage applications were down by 2.7 percent for the week ending May 11 as both purchase and refi apps eased. Purchase apps were down 2.1 percent, posting the third consecutive weekly decline. Purchase apps have only increased one week out of the last seven. This is worrisome for its implications for home sales this spring. Mortgage rates are increasing, along with house prices, eroding affordability. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage eased slightly to 4.77 percent.

Industrial production for April increased more than expected, up 0.7 percent. Overall capacity utilization increased to 78.0 percent, the highest reading since March 2015. Manufacturing output increased by 0.5 per-cent in April, after stalling in March. Motor vehicle assem-blies decreased by 2.2 percent, to an 11.8 million unit rate in April. Mining output was up by 1.1 percent, con-sistent with firming oil prices and an increasing rig count. Utility output was up by 1.9 percent in April.

Initial claims for unemployment insurance in-creased by 11,000 for the week ending May 12 to hit 222,000, still a very low number. Continuing claims for the week ending May 5 fell by 87,000 to hit an exception-ally low 1,760,000.

Financial markets have a strong conviction that the Federal Reserve will increase the fed funds rate range to 1.75-2.00 percent at the conclusion of the next FOMC meeting on June 13. The fed funds futures market shows an implied probability of 95 percent for that rate hike. The Fed will likely take a pass at the July 31/August 1 FOMC meeting. We expect the next 25 basis point rate hike after June 13 to come on September 26. That would give us three rate hikes in 2018 with a reasonable possi-bility of a fourth rate hike on December 19.

For a PDF version of this report click here: Comerica-Economic-Weekly-05182018.

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

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Comerica Economic Weekly | May 11, 2018

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

U.S. economic indicators released in early May show cooler inflation than in recent months and otherwise solid metrics.

The National Federation of Independent Business’s Small Business Optimism Index ticked up slightly in April to 104.8, a very strong reading. The net percent of business owners raising average selling prices eased in April, to a positive 14 percent, consistent with the small increase in the PPI for the month.

The headline Consumer Price Index increased by 0.2 percent in April, about as expected. Headline CPI was up 2.5 percent in April, over the previous 12 months. The year-over-year gain in core CPI was 2.1 percent in April, the same as for March. The recent gains in crude oil prices through early May will put more pressure on the CPI from energy in May.

According to AAA, the national average price for regular gasoline is up to $2.86 today, 22 percent higher than the $2.34 price from a year ago. As a general rule, every 1 cent increase in the price of gasoline absorbs about $1 billion in consumer spending over the course of a year. So as gasoline prices increase, we start to look at discretionary consumer spending categories, such as restaurants and hotels, for signs of stress.

The Producer Price Index for Final Demand increased by just 0.1 percent in April, after a series of stronger monthly gains from the fourth quarter of last year through the first quarter of this year. Over the 12 months ending in April, the PPI for Final Demand is up by 2.6 percent. The core PPI for Final Demand (excluding food, energy and trade) also increased by just 0.1 percent in April, and is up by 2.5 percent over the past year.

The Job Openings and Labor Turnover Survey for March showed another increase in the job openings rate to 4.2 percent, a record high for the survey. The hiring rate was unchanged at 3.7 percent, indicating that many open jobs are going unfilled. The quits rate increased to 2.3 percent, matching December 2017 for the highest quits rate since September 2005.

Initial claims for unemployment insurance for the week ending May 5 were unchanged, holding at 211,000. The four-week moving average of initial claims eased by 5,500, to 216,000, the lowest reading since December 1969. Continuing claims increased by 30,000 for the week ending April 28, to hit 1,790,000, a very low number.

Mortgage applications eased by 0.4 percent for the week ending May 4. Both purchase and refi apps were down slightly. Purchase apps look a little soft from the end of April through early May. However, there is still time for home sales metrics for May to improve. The Mortgage Bankers Association said that the rate for a 30-year fixed rate mortgage eased to 4.78 percent after increasing through late April.

The CME Group puts the implied odds of the next Federal Reserve rate hike coming on June 13 at a near certainty of 100 percent. The odds of an August 1 rate hike fall to 6 percent. September 26 is a strong candidate for the next rate hike after June, at 76 percent. December 19 is still on the board for a fourth rate hike this year, with implied odds of 42 percent. If you add the tail risk of more than four rate hikes in 2018 into the December probability, it increases to about 49 percent.

For a PDF version of this report click here: Comerica-Economic-Weekly-05112018.

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

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Comerica Economic Weekly | May 4, 2018

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

U.S. economic indicators in early May were good. Some are coming down off of very strong readings, so the directional comparisons may look disconcerting, but overall, metrics are consistent with an ongoing moderate GDP expansion.

Payroll job growth in April was moderate, up by 164,000 net new jobs for the month. Average hourly earnings were up by 0.1 percent for the month and 2.6 percent over the previous 12 months, so wage pressure was light. The unemployment rate fell to 3.9 percent, the lowest it has been since December 2000. The average workweek was unchanged at 34.5 hours, about where it has been since early 2012.

Nonfarm labor productivity increased at a sluggish 0.7 percent annual rate in the first quarter. Over the previous year, productivity was up by just 1.3 percent. Increasing productivity growth will be required to keep the expansion cycle going in the medium term. Unit labor costs were up at a 2.7 percent annualized rate in Q1, the strongest gain in the last four quarters.

The ISM Non-Manufacturing Index eased to a still-positive 56.8, a little below the very strong near-60 reading from earlier this year. All eighteen industries reported growth for the month. Anecdotal comments were positive with some focus on rising prices.

The ISM Manufacturing Index for April eased again to a still-positive 57.3, after dipping in March. Seventeen out of eighteen reporting industries said that they expanded in April. Anecdotal comments talked about strong sales, shortages of trucking services and concern over the possibility of trade tariffs.

The U.S. international trade gap narrowed significantly in March, to -$49.0 billion, from -$57.7 billion in February. Exports of goods grew while imports of goods shrank. The March numbers are close to those implied by the Q1 GDP report, so we expect no significant revision to Q1 GDP due to trade.

Nominal personal income increased by 0.3 percent in March, the same percentage increase as February. After adjusting for inflation and taxes, real disposable income increased by 0.2 percent in March, and was up a respectable 1.7 percent over the previous 12 months. Nominal consumer spending increased by 0.4 percent. The PCE price index was unchanged for the month, so real consumer spending also increased by 0.4 percent in March. Over the previous 12 months, the PCE price index was up by 2.0 percent. With spending growing faster than income, the personal saving rate declined to a fairly low 3.1 percent in March.

Auto sales eased in April to a 17.1 million unit rate, from 17.5 million in March.

Total construction spending for March fell by 1.7 percent, weighed down by private residential projects. This data is backwards looking, reinforcing the weak residential fixed investment numbers in first quarter GDP.

The Federal Reserve did as widely expected, and left the fed funds rate unchanged at the Federal Open Market Committee meeting of May 1/2. We expect to see the next fed funds rate increase to the range of 1.75-2.00 percent at the conclusion of the upcoming FOMC meeting over June 12/13. According to the CME Group, the implied odds of a June 13 rate hike are at 95 percent.

For a PDF version of this report click here: Comerica-Economic-Weekly-05042018.

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

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Comerica Economic Weekly | April 27, 2018

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

U.S. economic indicators at the end of April remain consistent with ongoing moderate GDP growth.

Real GDP growth for the first quarter of 2018 eased to a 2.3 percent annual rate, down from 2.9 percent in the last quarter of 2017. We believe that the step down in real GDP growth for Q1 does not represent a fundamental cooling of the U.S. economy. We knew that growth in real consumer spending would ease from the hot 4.0 percent annual rate of 2017Q4. Weaker car sales in Q1 brought growth in real consumer spending down to just 1.1. percent. Inventories saved the day, increasing by $33.1 billion ($2009) in Q1. and adding 0.43 percentage points to the headline growth rate. In the current quarter, we look for more support from consumer spending and residential investment.

Housing-related data look good. Existing home sales increased by 1.1 percent to a 5,600,000 annual unit rate in March. This was the strongest sales rate since last November. The months’ supply of existing homes for sale ticked up to a still-very-tight 3.6 months’ worth. The median sale price of an existing home in March was up by 5.8 percent over the previous year, according to the National Association of Realtors.

New home sales also did well in March, increasing by 4.0 percent, to a 694,000 annual unit rate. The inventory of new homes for sale dipped to a moderately tight 5.2 months’ worth. The median sale price of a new home in March was up 4.8 percent over the previous year.

The ratio of total homes for sale per household this spring is the lowest it has been since the NAR data on existing home sales began in 1999. We expect tight supply to continue to support moderate-to-strong house price gains for the remainder of this year.

The Case-Shiller U.S. National Home Price Index increased by 0.5 percent in March after seasonal adjustment, and was up by 6.3 percent over the previous 12 months. Western cities continue to show the strongest price gains over the last year.

Total mortgage applications for the week ending April 20 were little changed, easing by 0.2 percent. Purchase apps were unchanged, while refis dipped by 0.3 percent. According to the Mortgage Bankers Association, the rate for a 30-year-fixed-rate mortgage increased to 4.73 percent.

Initial claims for unemployment insurance fell by 24,000 for the week ending April 21, to hit 209,000, the lowest number since December 1969. Continuing claims fell by 29,000 for the week ending April 14, to hit 1,837,000. No problems here.

The Conference Board’s Consumer Confidence Index increased in April, to a confident 128.7.

The Employment Cost Index increased by 0.8 percent in Q1, showing a moderate gain in total compensation for civilian workers. For the private sector, wages were up in Q1 by 1.0 percent quarter-to-quarter. The warm ECI wage data for Q1 supports the Federal Reserve’s case for ongoing gradual rate hikes.

The implied odds of the next Federal Reserve rate hike coming on June 13 are 93.3 percent. September 26 is a strong candidate for the next hike after that, at 68.3 percent. December 19 is still on the board for a fourth rate hike this year, with implied odds of 38.0 percent.

For a PDF version of this report click here: Comerica-Economic-Weekly-04272018.

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

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Comerica Economic Weekly | April 20, 2018

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

U.S. economic indicators through the end of the first quarter of 2018 look positive, despite the risk for softer-than-expected Q1 real GDP growth. The beginning of the second quarter looks good. Risk factors concerning international trade feel like they have eased with more conciliatory statements from both the U.S. and from China, but they have not disappeared.

The Conference Board’s Leading Economic Index increased by 0.3 percent in in March, consistent with ongoing moderate economic growth over the next few months. The Coincident Index and the Lagging Index also gained in March.

Nominal retail sales for March beat expectations with an increase of 0.6 percent for the month, helped by strong auto sales. Auto sales ramped up to a 17.5 million unit rate in March. The dollar value of retail sales of autos increased by 2.0 percent in March. Non-auto retail sales increased by 0.2 percent, supported by a 1.4 percent increase in the sales of personal and healthcare stores. Other categories were mixed.

Industrial production increased by 0.5 percent in March, after posting a strong 1.0 percent gain in February. Manufacturing activity was little changed, up 0.1 percent for the month. Mining production increased by 1.0 percent. The push in IP came from utility output, which rebounded by 3.0 percent after a 5.0 percent decline in February. For the 12 months ending in March, manufacturing production was up by a moderate 3.0 percent. Mining output was up by a strong 10.8 percent for the year, boosted by increasing drilling activity and firmer oil prices. Auto assemblies jumped in March, to a 12.04 million unit annual rate. This is the highest vehicle production rate since December 2016.

Manufacturing and trade nominal inventories increased by 0.6 percent in February, after a similar 0.6 percent increase in January. This is a positive factor for Q1 GDP growth. Over the 12 months ending in February, nominal inventories were up by 4.0 percent.

Residential construction activity picked up in March despite the bad weather. Housing starts increased to a 1,319,000 unit annual rate. The gain in starts came from multifamily construction, which increased by 14.4 percent, to a 452,000 unit rate. This was the strongest pace for multifamily starts since December 2016. Single-family starts eased by 3.7 percent in March, to an 867,000 unit rate, still well below the 946,000 unit rate from last November. Permits increased by 2.5 percent for the month, also with gains in the multifamily market.

According to the National Association of Home Builders, their housing market index dipped to 69 in April, from 70 in March. The index was up to 74 in December, its highest level since 1999. Weather has been a challenge for both builders and buyers this spring. Also, gradually increasing mortgage rates may be a headwind.

The Mortgage Banker Association’s Composite Mortgage Applications Index increased by 4.9 percent for the week ending April 13. Purchase apps were up by a strong 6.1 percent, while refi apps increased by 3.5 percent. According to the MBA, the rate for a 30-year fixed rate mortgage was steady at 4.66 percent.

The odds of a June 13 fed funds rate hike are in the all-but-certain range of 98 percent.

For a PDF version of this report click here: Comerica-Economic-Weekly-04202018.

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

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Comerica Economic Weekly | April 13, 2018

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

Price indexes reported this week showed the normal variability in the month-to-month changes, but on a year-over-year basis most prices are warming up.

The Consumer Price Index for March was cooler than expected for the month, easing by just 0.1 percent, but the gain over the previous 12 months climbed to 2.4 percent. This is well above the 1.6 percent year-over-year increase from last June. Core CPI, excluding food and energy, increased by a steady 0.2 percent month-to-month. Over the 12 months ending in March, core CPI was up by 2.1 percent, above the 1.7 percent year-over-year gain from last November.

The Producer Price Index for Final Demand increased by 0.3 percent for the month, driven by food prices. Transportation and warehousing was also warm, increasing by 0.6 percent for the month. Over the previous 12 months, the PPI for Final Demand was up by 3.0 percent. Core PPI (final demand PPI less food, energy and trade) increased by 0.4 percent for the month, and was up by 2.9 percent over the previous year. Higher crude oil prices in April could push petroleum product prices up again in April and May.

The headline import price index for the U.S. was unchanged in March, after a series of noticeable increases from last August through February. On a year-over-year basis, the import prices index is now up by 3.6 percent.

The National Federation of Independent Business’s Small Business Optimism Index eased slightly in March, down from a very high reading in February. The current range for the NFIB Index is on par with readings from 2004-2005. The labor market components of the NFIB survey remained strong in March.

Labor data this week was solid, standing in contrast to the weak 103,000 net payroll job gain for March that was reported on April 6.

Initial claims for unemployment insurance fell by 9,000 for the week ending April 7, to hit 233,000. Continuing claims increased by 53,000 for the week ending March 31, to hit 1,871,000. Despite the weekly increase in continuing claims, the four-week moving average for that series dropped to its lowest level since January 1974.

The rate of job openings eased slightly, to 3.9 percent in February, according to the Job Openings and Labor Turnover Survey. This is still a strong rate, consistent with a healthy job market. Same for the hiring rate, which eased to 3.7 percent in March.

Mortgage metrics show that home sales are holding up despite the upward pressure on finance charges. Mortgage applications declined by 1.9 percent for the week ending April 6. Purchase apps were down by 2.0 percent and refi apps were off by 1.7 percent. The four-week moving average for refi apps was down 13.4 percent from a year ago. Purchase apps are up 4.9 percent from a year ago. According to the Mortgage Bankers Association, the rate on a 30-year fixed rate mortgage eased to 4.66 percent for the week.

The minutes from the March 20-21 Federal Open Market Committee were released on Wednesday. Financial markets interpreted them as slightly hawkish relative to expectations, marginally increasing the odds of a fourth fed funds rate hike this year. According to the CME Group, the implied probability of a fourth fed funds rate hike in 2018, to 2.25-2.50 percent on December 19 notched up to 28.7 percent.

For a PDF version of this report click here: Comerica-Economic-Weekly-04132018.

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

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Comerica Economic Weekly | April 6, 2018

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

Posturing between the U.S. and China over trade tariffs dominated business news this week. The economic data was reasonably good and consistent with an ongoing moderate GDP expansion through 2018H1. However, the employment report for March fell flat.

The official jobs data for March was eye-catching, as firms increased employment by just 103,000 jobs on net, well below consensus expectations of about +185,000 for the month. The miss in March payrolls comes on the heels of a robust 326,000 job gain in February. The March slump looks like mean reversion right now. If it is followed by a weak April, that is another story, but other indicators point to ongoing moderate job growth this spring. The unemployment rate stayed at 4.1 percent for the sixth consecutive month. We still expect it to edge lower, but the rate of decline has clearly eased. Average hourly earnings increased by 0.3 percent for the month and are up 2.7 percent over the previous year.

The Fed will be watching both employment numbers and the wage data carefully over the next few months. We expect Jay Powell & Company to keep the fed funds rate unchanged at the next FOMC meeting over May 1-2. We look for the second fed funds rate hike this year to come at the conclusion of the June 12-13 FOMC meeting. The CME Group’s implied odds of a June 13 rate hike have eased to a still-high 77.8 percent.

The U.S. international trade gap widened modestly in February, to -$57.6 billion, from -$56.7 billion in January. Some of the push on the trade gap came from TV royalties paid out for the Winter Olympics. Through February, trade looks like it will be a neutral factor for 2018Q1 GDP. Trade was a big drag in 2017Q4, subtracting 1.2 percent from real GDP growth for the quarter.

Initial claims for unemployment insurance increased by a larger-than-expected 24,000 for the final week of March, to hit 242,000. This is still a very low level. The UI claims weekly data can be jumpy this time of year because of weather, seasonal adjustment factors and the timing of the Easter holiday.

The ISM Non-Manufacturing Index for March eased to 58.8, down from 59.5 in February. This is still a positive number indicating improving conditions for the bulk of the U.S. economy. Some survey respondents were concerned that interest rate increases and tariffs could add to price pressures. Volatility in construction materials prices was also noted.

The ISM Manufacturing Index for March eased to a still-strong 59.3, down slightly from February’s 60.8. The production, new orders and employment sub-indexes were all strong. The prices sub-index was elevated at 78.1, indicating increasing pricing pressure.

The value of construction put in place was little changed in February, gaining 0.1 percent. Over the previous 12 months, the total nominal value of U.S. construction put in place has increased by 3.0 percent, well off the double-digit gains from 2014-2015.

Auto sales were a surprise positive in March, increasing to a 17.5 million unit rate. This is supportive of overall consumer spending for the first quarter, which is the largest part of GDP. Forecasting auto sales is now a two-handed argument. On the one hand, strong economic conditions are supportive of ongoing auto sales. On the other hand, sales were declining through the first eight months of 2017, then came the surge in sales in September as a result of hurricane damage along Gulf Coast. We expect to see gradually easing auto sales this year.

For a PDF version of this report click here: Comerica-Economic-Weekly-04062018.

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

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Comerica Economic Weekly 03302018

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

U.S. economic data this week was again generally positive and consistent with an ongoing moderate GDP expansion through early 2018.

Real GDP growth for the last quarter of 2017 was revised up. The first estimate was 2.6 percent annualized growth, the second estimate dipped to 2.5 percent. The third estimate is now up to 2.9 percent, just shy of our 3.0 percent forecast from January. Stronger consumer spending and inventory accumulation pushed the third estimate up. It looks like we can hit near 3.0 percent again for the first quarter of 2018. The first estimate of 2018Q1 real GDP growth will be released by the Bureau of Economic Analysis on April 27.

Nominal personal income increased by a moderate 0.4 percent again in February. Wages and salaries were up by 0.5 percent as employment, wage rates and hours worked all increased in February. The personal consumption expenditure (PCE) price index increased by 0.2 percent in February. Excluding food and energy, the core PCE price index also gained 0.2 percent for the month. Consumers spent less on vehicles in February. Total nominal consumer spending was up by 0.2 percent for the month. After adjusting for inflation, real consumer spending was unchanged. The personal saving rate ticked up to 3.4 percent.

This is shaping up to be a good year for consumer spending, with one key exception—autos. We expect auto sales to continue to ease in the coming months after last fall’s surge of replacement buying for hurricane damaged vehicles.

The Conference Board’s Consumer Confidence Index ticked down in March to a still-strong 127.7, after hitting an 18 year high in February.

House prices continue to go up. The Case-Shiller U.S. National Home Price Index for January showed a 6.2 percent year-over-year gain. For the month, the seasonally adjusted U.S. index was up by 0.5 percent. Housing markets in the western half of the U.S. are appreciating quicker. San Francisco, Las Vegas and Seattle are showing 10-13 percent yearly gains.

Weekly labor data was positive and consistent with ongoing moderate-to-strong job growth. Initial claims for unemployment insurance fell by 12,000, to hit 215,000 for the week ending March 24. Continuing claims gained 35,000 for the week ending March 17, to hit 1,871,000, still a very low number.

The Federal Reserve Bank of Richmond said that manufacturing activity expanded at a slower pace in the mid-Atlantic area in March, relative to a very strong reading in February.

The Federal Reserve Bank of Dallas posted similar results in the Texas Manufacturing Outlook.

According to the CME Group, the odds of a fed funds rate hike at the next scheduled FOMC meeting, over May 1/2, are quite low, at about 2 percent. The odds jump for the June 12/13 meeting, to 79 percent. The odds of the next rate hike coming at the July 31/August 1 meeting drop to 6 percent. September 25/26 is the next meeting in focus for a rate hike, with the odds at about 50 percent. A fourth rate hike in 2018, at the December 18/19 FOMC meeting, is still being considered by the fed funds futures market, with the implied probability currently at around 26 percent.

Moody’s Analytics’ Risk of Recession Indicator for February shows a 10 percent probability of a U.S. recession within the next six months.

For a PDF version of this report click here: Comerica-Economic-Weekly-03302018.

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

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Comerica Economic Weekly | March 23, 2018

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

U.S. economic data this week was generally positive and consistent with an ongoing moderate GDP expansion through the first quarter of 2018. In addition to the data releases, the Federal Reserve made news at the end of their regularly scheduled FOMC meeting on Wednesday by raising the fed funds rate as expected, to a range of 1.50-1.75 percent.

The Trump Administration clarified its stance on tariffs for imported steel and aluminum this week. Canada and Mexico will be excluded from the new tariffs, as well as, the entire European Union, Australia, Argentina, Brazil and South Korea. The Trump Administration also announced that they will institute additional tariffs on China, targeting $60 billion worth of Chinese goods. China is expected to retaliate. China’s commerce ministry says they have a list of about 120 U.S. products including steel pipe, fresh fruit, wine, pork and recycled aluminum targeted for a 15 percent tariff unless the two countries can resolve their differences.

Also, Congress has agreed to a $1.3 trillion federal spending bill that would keep the government funded through the remainder of this fiscal year, which ends in September. However, despite earlier support, President Trump has threatened to veto the bill because of immigration and border wall issues. Nonetheless, it is widely expected that the final spending bill will add to the federal budget deficit, requiring the U.S. to issue more Treasury bonds, putting upward pressure on interest rates.

The Conference Board’s Leading Economic Index increased again in February, up by 0.6 percent, following January’s revised 0.8 percent gain. Since last October, the Leading Index has shown a strong average monthly increase of 0.8 percent, bolstering expectations for U.S. economic performance in 2018. New orders for durables goods increased by 3.1 percent in February, after falling by 3.5 percent in January. Much of the volatility comes from the usual suspects, both defense and nondefense aircraft. The core measure, nondefense capital goods excluding aircraft, increased by a healthy 1.8 percent.

New home sales ticked down by 0.6 percent in February, to a 618,000-unit annual rate, well off the recent peak rate of 711,000 from last November. The months’ supply of new homes for sale increased to 5.9 months-worth. The median selling prices of a new home was up by 9.7 percent over the previous 12 months.

Existing home sales increased by 3.0 percent in February, to a 5,450,000-unit annual rate, still below the recent peak rate of 5,720,000 from last November. Inventories of existing homes for sale remained tight in February. The months’ supply of available homes stayed at 3.4 months. The median sale price of an existing home was up 5.9 percent in February over the previous 12 months.

Total mortgage applications eased by 1.1 percent for the week ending March 16 as refi apps dropped by 4.5 percent. We expect to see an ongoing slide in refi apps this year as mortgage rates increase. Apps for purchase increased by 1.4 percent, the second consecutive weekly gain. On a four-week moving average basis, purchase apps were up 3.5 percent from their year ago level. According to the Mortgage Bankers Association, the rate for a 30year fixed rate mortgage ticked down one basis point to 4.68 percent in mid-March.

The Bank of England’s Monetary Policy Committee voted on Tuesday to leave the benchmark interest rate unchanged at 0.50 percent. Their next meeting is scheduled for May 10.

For a PDF version of this report click here: Comerica-Economic-Weekly-03232018.

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

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Comerica Economic Weekly | March 16, 2018

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

We are releasing the CEW early this week due to publication constraints, so it does not include a review of February housing starts and industrial production.

U.S. economic data released so far this week was mostly positive and consistent with an ongoing moderate GDP expansion through the first quarter of 2018.

The key exception to that rule was the retail sales data for February. The monthly retail sales data gives us insight into total consumer spending for the quarter. The retail trade data accounts for a little under half of total consumer spending. Consumer spending accounts for about two-thirds of GDP.

Nominal retail sales declined for the third month in row, easing by 0.1 percent in February. Retail sales have been following auto sales lower since late last year. Retail sales ex-autos increased by 0.2 percent in February. We expect ex-auto retail sales to firm up this spring, supported by high consumer confidence, strong job growth, wage gains, lower taxes and house price appreciation. Our outlook for unit auto sales still shows gradual declines for the remainder of this year.

In part, because of the weaker-than-expected retail sales data through February, we have lowered our first quarter real GDP growth forecast to 2.6 percent.

We saw some key inflation data this week for February, which was generally tamer after a hotter January. The Consumer Price Index for February gained a moderate 0.2 percent after a hot 0.5 percent increase in January. Over the previous 12 months, the headline CPI is up by 2.2 percent.

The Producer Price Index for Final Demand Increased by 0.2 percent in February, about as expected. Over the previous 12 months, the PPI for Final Demand is up by 2.8 percent. So we are seeing upstream pricing pressure that has not yet hit consumers.
Import prices increased by 0.4 percent in February, after gaining 0.8 percent in January. Prices for fuel imports fell by 0.6 percent while non-fuel imports increased by 0.5 percent.

The National Federation of Independent Business’s Small Business Optimism Index increased by 0.7 points in February, to 107.6, which is the second highest reading in its 45-year history.

Mortgage apps looked a little soft through February, but we are still ahead of the spring buying season in most areas. Purchase apps increased by 3.4 percent for the week ending March 9, and are up 2.9 percent above year-ago levels. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage increased to 4.69 percent in early March.

According to the National Association of Home Builders, builder confidence remains high in March, but ticked down one point.

The Federal Reserve Bank of Philadelphia says that manufacturing conditions remain good there in March. The Federal Reserve Bank of New York says that business activity grew robustly in March.

Initial claims for unemployment insurance fell by 4,000, to hit 226,000 for the week ending March 10. Continuing claims increased by 4,000, to 1,879,000. Both are at very low levels.

We look forward to the Federal Open Market Committee meeting next week. We expect to see lots of useful information from the Powell Fed.

For a PDF version of this report click here: Comerica-Economic-Weekly-03162018.

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

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