Comerica Economic Weekly, July 12, 2019

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

The big economic news this week was Federal Reserve Chairman Jay Powell’s semi-annual two-day testimony before Congress. On Wednesday Powell’s prepared remarks to the House Committee on Financial Services contained a series of justifications for easing monetary policy soon. Practically, this means that the Fed has all but guaranteed to cut the fed funds rate on July 31. There are two remaining questions.

The first question is...how much of a cut? We expect the Fed to cut the fed funds rate by 25 basis points to a range of 2.00-2.25 percent. There is a reasonable chance that they may do more and cut by 50 basis points. We believe that a 25 basis point cut will allow the Fed to test market reaction to a rate cut without using up too much of its rate cutting ability. 

The second question is...will a July 31st rate cut be the start of a rate cutting cycle by the Fed? We believe that downside risk factors for the U.S. economy may intensify and potentially compound this fall and winter. Our forecast calls for another 25 basis point fed funds rate after the end of July and before the end of this year. So we will stop far short of calling this the start of a rate cutting cycle, but there is a chance that that pattern could eventually play out. 

Inflation data for June was benign, providing the Fed ample leeway for a late-July rate cut. The Producer Price Index for Final Demand increased by just 0.1 percent, for the second straight month in June. Over the 12 months ending in June, the PPI for Final Demand is up by 1.7 percent. Energy prices were a weight on the headline index in June, falling by 3.1 percent for the month. Core PPI (final demand less food, energy and trade) was unchanged in June and was up by 2.1 percent over the year.

The Consumer Price Index for June was also up by 0.1 percent. Over the previous 12 months headline CPI gained 1.6 percent. Excluding food and energy, core CPI was up by 0.3 percent, its strongest monthly gain since January 2018. Core prices were pushed by a jump in used car and truck prices, which were up by 1.6 percent for the month, reversing a four-month slide. Over the previous 12 months core CPI was up by 2.1 percent. 

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

Total mortgage applications fell by 2.4 percent for the week ending July 5. Refi apps were down 6.5 percent while purchase apps gained 2.3 percent. On a four-week moving average basis Refi apps were up 88 percent from a year ago. Purchase apps were up 6.8 percent. According to the Mortgage Bankers Association the rate for a 30-year fixed-rate mortgage eased to 4.04 percent. 

The National Federation of Independent Business’s Small Business Optimism Index dipped 1.7 points to 103.3 in June. This is still a high level for the index but it is well below the peak of 108.8 from August 2018.

The Job Openings and Labor Turnover Survey for May showed a drop in the job openings rate to 4.6 percent. The hiring rate eased to 3.8 percent. These are still strong rates but the job openings rate is not quite as strong as the 4.8 percent peak from mid-2018 through early 2019. 

Railroad carloads for the week ending July 6 were 8.2 percent below their year-ago level. Iron and scrap steel carloads were down 16.5 percent from their year-ago level.

For a PDF version of this report, please click here:  Comerica Economic Weekly, July 12, 2019

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

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Comerica Economic Weekly, July 5, 2019

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

Economic data was mostly positive this week, capped by a solid jobs report for June. 

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

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

The ISM Manufacturing Index dipped to 51.7 in June, down from 52.1 in May. The June reading is still positive, but the index is trending down. Twelve of eighteen industries reported expansion for the month. The five industries reporting contraction were apparel, primary metals, wood products, transportation equipment and fabricated metals. Anecdotal comments featured concerns about trade tariffs for many industries.

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

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

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

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

Vehicle sales were better than expected in June, holding up at a 17.2 million unit rate after a strong May rate of 17.4 million. Auto sales inched up for the month while light truck sales receded.



For a PDF version of this report, please click here: Comerica Economic Weekly, July 5, 2019
The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations.  The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team.  We are not offering or soliciting any transaction based on this information.  We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation.  Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed.  Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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Comerica Economic Weekly, June 28, 2019

June 28, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Economic data released this week was mixed and consistent with overwhelming markets expectations of at least a 25 basis point fed funds rate cut on July 31.

Nominal personal income increased by a solid 0.5 percent in May, just as it did in April. May income growth was supported by interest income, up by 2.3 percent for the month, reflecting higher interest rates. Wages and salaries, accounting for about half of personal income, increased by a sedate 0.2 percent. Inflation was moderate in May, with the personal consumption expenditure (PCE) price index gaining 0.2 percent for the month. Over the year ending in May, the headline PCE price index is up by a tepid 1.5 percent. The core PCE price index (excluding food and energy) was also up by 0.2 percent for the month and 1.6 percent for the 12 months ending in May. After adjusting for inflation and taxes, real personal disposable income was up by a moderate 0.3 percent in May. Real consumer spending increased by a moderate 0.2 percent in May, pushed by a rebound in auto sales. We expect consumer spending to be supportive of moderate real GDP growth in the second quarter.

The Conference Board’s Consumer Confidence Index fell noticeably in June, down 9.8 points to 121.5. This is well below the high from last October of 137.9. Consumer confidence does not equal consumer spending, but it is certainly a factor in discretionary purchases as cars and houses most often are.

New orders for durable goods decreased by $3.3 billion in May, or 1.3 percent. The headline series has been flattish since late 2017. Delays and cancellations of orders at Boeing are keeping the transportation equipment category subdued. Core new orders (nondefense capital goods excluding aircraft) were up by 0.4 percent in May after losing 1.0 percent in April. U.S. manufacturing indicators are generally showing little momentum heading into the second half of the year.

Initial claims for unemployment insurance increased by 10,000 for the week ending June 22, to hit 227,000, still well within its recent range. Continuing claims were up by 22,000 for the week ending June 15, reaching 1,688,000, consistent with tight labor markets.

New home sales fell by 7.8 percent in May, down to a 626,000 unit annual rate. This is the weakest monthly sales rate so far this year. The months’ supply of new homes for sale swelled to 6.4 months’ worth, consistent with reports of lower builder confidence.

The Case-Shiller U.S. National Home Price Index increased by 0.3 percent in April after seasonal adjustment. Over the previous 12 months, the index is up by 3.5 percent. This is the weakest yearly gain since September 2012. So far, house prices have not accelerated in response to lower mortgage rates. Most of the 20 cities tracked by the Case-Shiller index are showing subdued yearly gains. Las Vegas still leads the 20-city pack, up 7.1 percent for the year. Seattle is the weakest area, going unchanged over the previous 12 months.

Lower mortgage rates are fueling a surge in mortgage refinance. Purchasing activity is getting some support from lower rates, but remains relatively subdued. Total mortgage applications were up by 1.3 percent for the week ending June 21, driven by a 3.2 percent increase in refi apps. Purchase apps were down by 0.9 percent, their second weekly decline after a good week in early June. On a four-week moving average basis, refi apps are up by 75.3 percent over the last 12 months. Purchase apps are up 6.0 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage fell to 4.06 percent.



For a PDF version of this report, please click here: Comerica Economic Weekly June 28, 2019

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

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Comerica Economic Weekly, June 21, 2019

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

Economic data released this week was mixed, yet consistent with a moderate economic expansion in Q2. The big news this week were changes by the Federal Reserve in its monetary policy announcement and revised forecasts on Wednesday. 

The Fed dropped the word “patient” from the policy announcement and adopted a more proactive stance for managing the economic outlook. The expected path of the fed funds rate, known as the “dot plot,” was revised down on Wednesday. Fed officials now expect to see a rate cut in the fed funds rate by the end of 2019.

Fed funds futures markets are pricing the probability of the first fed funds rate cut at the conclusion of the July 30-31 FOMC meeting at near 100%. However, there is less consensus as to whether the fed should do a 25 or 50 basis point rate cut at the end of July. The Fed has indicated that it is open to a future rate cut, but would like to see more evidence. If officials felt that the July meeting was not in play, they would need to talk down expectations of a rate cut in July very soon, otherwise they may risk an adverse surprise to the markets.

Existing home sales increased 2.5 percent in May to a 5,340,000 annual unit rate. Home sales saw a slight tailwind from lower mortgage rates this spring. The supply of existing homes for sale ticked up to 4.3 months in May. The median sales price of an existing home was up 4.8 percent year-over-year in May.

Housing starts decreased by 0.9 percent in May to a 1,269,000 annual unit rate. Single-family starts declined 6.4 percent in May. However, multifamily starts were up by 11 percent for the month. This is the third monthly double-digit gain in multifamily starts since February. Total permits were little changed in May, gaining just 0.3 percent for the month, to a 1,294,000 annual unit rate.

Builder confidence dipped in early June according to the National Association of Home Builders. The current  and six month outlook for single-family homes sales index components were down for the month. Overall homebuilder confidence is still up from December.

Total mortgage applications decreased by 3.4 percent for the week ending June 14. Refis saw a slight decline, down by 3.5 percent for the week, after gaining 46.5 percent the week before. Purchase apps also saw a modest pullback, decreasing by 3.5 percent. On a four-week moving average basis, refi apps were up a strong 60 percent over the previous 12 months. Purchase apps were up 5.5 percent over the year. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage increased to 4.14 percent.

The Conference Board’s Leading Economic Index was unchanged in May, following three consecutive monthly gains. Seven of the ten components were positive for the month. However, the May dip in stock prices and ISM new orders were major drags on the Leading Index. The Coincident Index increased by 0.2 percent in May, while the Lagging Index decreased 0.2 percent.

Surveys of manufacturing activity conducted by regional Federal Reserve banks were soft in June. The Empire State Manufacturing Survey’s headline index declined 26 points to -8.6 percent in June. This is the largest monthly decline on record for the index. The Philly Fed Manufacturing Survey diffusion index also moderated from 16.6 in April to just 0.3 in May. 

Initial claims for unemployment insurance decreased by 6,000 for the week ending June 15, to hit 216,000. Continuing claims were down 37,000, to hit 1,662,000 for the week ending June 8. Claims data remain positive as we move further into June.

For a PDF version of this report, please click here:  Comerica Economic Weekly, June 21, 2019

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

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Comerica Economic Weekly, June 14, 2019

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

U.S. economic data was generally positive this week. Headline inflation for May was weighed down by falling petroleum prices. 

Retail sales increased by 0.5 percent in May, boosted by higher unit auto sales. Unit auto sales increased noticeably in May, from a 16.4 million unit rate in April, up to a 17.4 million unit rate. The dollar value of retail sales of autos and parts increased by 0.7 percent for the month. Retail sales ex-autos gained 0.5 percent in May. Electronics and appliance store sales gained 1.1 percent for the month, as did sporting goods stores. Over the 12 months ending in May, total retail sales were up a moderate 3.2 percent. The Consumer Price Index was up 1.8 percent over this period, implying a roughly 1.4 percent increase in retail sales for the year, after inflation. 

Total industrial production gained 0.4 percent in May, reversing a 0.4 percent loss in April. Manufacturing output increased by 0.2 percent. Total motor vehicle assemblies increased from a 10.65 million unit pace in April, to 11.33 million in May. Mining output inched up by 0.1 percent. Utilities gained 2.1 percent in May, after a 3.1 percent loss in April. Over the year ending in May, total industrial production was up 2.0 percent. Capacity utilization inched up to 78.1 percent, still well below the cyclical peak of 79.6 percent from last November. 

The Consumer Price Index increased by just 0.1 percent for the month, after increasing by 0.3 percent in April. The CPI’s energy price sub-index fell by 0.6 percent in May after three months of strong gains. Food prices gained 0.3 percent in May, pushed up by non-alcoholic beverages and other categories. Core CPI (less food and energy) increased by just 0.1 percent for the fourth consecutive month. Over the previous 12 months, headline CPI was up by 1.8 percent, well below the 2.9 percent year-over-year gains from last summer. Core CPI was up by 2.0 percent for the 12 months ending in May, down from the 2.3 percent year-over-year gain from June 2018.

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

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

Initial claims for unemployment insurance increased by 3,000 for the week ending June 8, to hit 222,000. Continuing claims gained 2,000, to hit 1,695,000 for the week ending June 1. Claims data into early June still looks good, contrary to the May payroll data which was weaker than expected.

According to the National Federation of Independent Business, small business optimism bounced back in May. Their marquis index increased to 105.0 in May, after sinking to 101.2 in January.

For a PDF version of this report, please click here:  Comerica Economic Weekly, June 14, 2019

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

 

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Comerica Economic Weekly, June 07, 2019

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

U.S. economic data this week was mixed, but capped by a weaker-than-expected payroll number for May. This, in combination with the threat by the Trump Administration of increased trade tariffs on Mexico and China, puts the Federal Reserve in the spotlight as it prepares for the upcoming Federal Open Market Committee meeting over June 18-19.

We expect the Fed to leave the fed funds rate unchanged on June 19. But we expect them to provide forward guidance to indicate that a rate cut is coming in the near future, possible as early as July 31. Market expectations for at least one fed funds rate cut this year have increased in recent weeks. Currently, the fed funds futures market shows an implied probability of 64 percent that rates will remain unchanged on June 19. However, the implied probability of at least one rate cut by the end of this year is now 99 percent. The implied probability of two or more 25 basis point rate cuts before the end of this year now stands at 88 percent.

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

Other labor-related data for May looks better. Initial claims for unemployment insurance were unchanged at 218,000 for the week ending June 1. Continuing claims gained 20,000 for the week ending May 25. This is well within the range of normal and should not cause alarm.

The nominal U.S. international trade gap narrowed slightly in April after widening in March. Exports dropped by $4.6 billion in April after increasing for three consecutive months. Imports dipped by $5.7 billion as imports of goods decreased by $5.4 billion. After adjusting for price changes, the real trade balance in goods for April was below the first quarter average, suggesting that as of now, trade will be a moderate positive for Q2 GDP. This could change easily with two more months left to report in the second quarter.

The ISM Non-Manufacturing Index for May does not corroborate the weak employment data. In May, the ISM Non-Manufacturing Index increased from 55.5 to a solid 56.9, indicating moderate expansion for the bulk of the U.S. economy. The business activity, new orders and employment sub-indexes all improved and are all well above the break-even 50 mark. Anecdotal comments were generally positive, but did show concern about the impact of trade tariffs. Only the agriculture industry reported worsening conditions.

The ISM Manufacturing Index decreased from 52.8 in April to a still-positive 52.1 in May. This is the lowest reading for the index since October 2016. Momentum in the manufacturing sector has clearly dissipated since the recent high headline reading of 60.8 from last August. Six industries reported contraction in May.



For a PDF version of this report, click here: Comerica Economic Weekly, June 07, 2019

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

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Comerica Economic Weekly, May 31, 2019

May 31, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic data this week was mixed. The mood at the end of the second quarter remains tentative since the U.S/China trade talks stalled and the prospects for a meaningful infrastructure bill in Congress appear to be dwindling.

Nominal personal income increased by 0.5 percent in April. After adjusting for taxes and inflation, real disposable personal income was up just 0.1 percent for the month. Real personal spending was unchanged in April after climbing 0.9 percent in March. The headline personal consumption expenditure price index was up 1.5 percent and core PCE (less food and energy) increased 1.6 percent in the 12 months ending in April.

The second estimate of 2019Q1 real GDP growth was revised down slightly to 3.1 percent. Corporate profits appear to be under pressure. Corporate profits for domestic industries fell by $54.6 billion in Q1, their second consecutive quarterly decline. It is not unusual, even in a healthy economy, to see corporate profits decline for 1 or 2 quarters. But a persistent decline in corporate profits can be a trip wire for the U.S. economy.

The estimate of international trade in goods shows a slight widening of the trade gap in April. This is consistent with our assumption that trade reverts to a small drag on the GDP in Q2. 

The Conference Board’s U.S. Consumer Confidence Index jumped by 4.9 points in May, to reach 134.1. This is near the peak levels from last fall. The index slumped through December and January during the federal government shutdown. Lower interest rates and improved confidence should be positives for housing, autos and other consumer spending.

Initial claims for unemployment insurance increased by 3,000 for the week ending May 25, to hit 215,000. This is still a very low number. Continuing claims fell by 26,000 for the week ending May 18, to hit 1,657,000.  

The Case-Shiller U.S. National Home Price Index for March shows that house price appreciation is weakening. The U.S. index was up 3.7 percent in March. Most of the key 20 cities are still showing moderate year-over-year gains, but California markets have clearly cooled. Las Vegas is at the top of the list showing an 8.2 percent year-over-year gain. San Diego and Los Angeles are at the bottom of the list, showing 1.3 percent year-over-year gains. 

Mortgage applications dipped by 3.3 percent for the week ending May 24. Purchase apps fell by 1.4 percent, their third consecutive weekly drop. Refi apps were off by 6.0 percent after gaining 8.3 percent the week before. On a four-week moving average basis, refi apps are still up 22.1 percent over the last year. Purchase apps are up 6.1 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage remained at 4.33 percent. 

We expect the Federal Reserve to leave the fed funds rate range unchanged at 2.25-2.50 percent at the next FOMC meeting over June 18-19. According to the fed funds futures market, the implied odds of a rate cut before the end of this year have increased to about 83 percent. There is no expectation of a rate hike this year according to the fed funds futures market. Fed Governor Richard Clarida said on Thursday that the Fed would be open to cutting rates if the economy sours. 

For a PDF version of this report, click here:  Comerica Economic Weekly, May 31, 2019

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

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Comerica Economic Weekly, May 17, 2019

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

U.S. economic data was mixed this week. Weaker-than-expected retail sales for April is a concern, but consumer sentiment for May appears to be improving. 

Nominal retail sales decreased by 0.2 percent in April. Motor vehicle and parts sales declined by 1.1 percent for the month. Estimated unit auto sales fell noticeably from a 17.5 million unit rate in March, to 16.4 million in April. Retail sales ex-auto inched up by 0.1 percent in April. Higher gasoline prices in April helped, boosting service station sales by 1.8 percent for the month. Other categories were mixed. Building materials sales dropped by 1.9 percent. 

According to the University of Michigan, consumer sentiment surged in early May. Also importantly, inflation expectations picked up. This bolsters the case for the Federal Reserve leaving the fed funds rates unchanged instead of making a pre-emptive rate cut. 

The Conference Board’s Leading Economic Index increased by 0.2 percent in April, its third consecutive monthly gain. Seven of the ten components were positive, led by stock prices. The Coincident Index increased by just 0.1 percent in April, while the Lagging Index declined by 0.1 percent. 

The National Federation of Independent Business’s Small Business Optimism Index increased in April to  the highest level this year at 103.5. This is still well below the recent high from last August which was 108.8.

Housing starts improved by more than expected in April, increasing by 5.7 percent to a 1,235,000 unit annual rate. Single-family starts improved, gaining 6.2 percent to an 854,000 unit rate. Multifamily starts improved for the third consecutive month, up by 4.7 percent in April to a 381,000 unit rate. Both series look like they are past their peaks for this cycle. Total permits for new residential construction were little changed in April, inching up by 0.6 percent to a 1,296,000 unit rate. 

U.S. industrial production declined by 0.5 percent in April. The biggest component, manufacturing, was also down by 0.5 percent. Manufacturing output has now been flat to down for the last four months. Total vehicle assemblies eased to a 10.58 million unit annual rate in April, the lowest rate since May 2018. Overall capacity utilization eased to 77.9 percent in April. Capacity utilization looks like it is past its peak for this cycle, which may prove to be the 79.6 percent from last November. 

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

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

We expect the Federal Reserve to leave the fed funds rate range unchanged at 2.25-2.50 percent at the next FOMC meeting over June 18/19. According to the fed funds futures market, the implied odds of a rate cut before the end of this year have increased to about 78 percent. We still think that the risk is weighted toward a rate cut, but a 78 percent probability is too high.

For a PDF version of this report, click here:  Comerica Economic Weekly, May 17, 2019

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

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Comerica Economic Weekly, May 10, 2019

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

U.S. economic data remains consistent with an ongoing moderate GDP expansion in the second quarter of 2019. 

Inflation readings were well contained in April even with higher energy prices this spring. The Producer Price Index for final demand increased by a moderate 0.2 percent in April. Over the previous 12 months, PPI for final demand was up by 2.2 percent. The core index for PPI (less foods, energy and trade) was a little warmer in April, gaining 0.4 percent for the month. Over the previous 12 months, core PPI was also up by 2.2 percent. 

The Consumer Price Index increased by 0.3 percent in April. The energy sub-index gained 2.9 percent for the month. Over the previous 12 months, CPI was up 2.0 percent. Core CPI (less food and energy) increased a modest 0.1 percent in April. Over the previous 12 months, Core CPI was up 2.1 percent. 

Labor data continues to look good. The Job Openings and Labor Turnover Survey for March showed an increase in the job openings rate to 4.7 percent. The hiring rate was unchanged for the month at 3.8 percent. The quits rate remained high at 2.3 percent, where it has been since last November. A high quits rate is consistent with a strong labor market. 

Initial claims for unemployment eased by 2,000 for the week ending May 4, to hit 228,000. We have seen some extra volatility in the initial claims data since the end of last November. The series looks like it is centered around 220,000-225,000, which is a very good level for the U.S. economy. Continuing claims increased by 13,000 for the week ending April 27, to hit 1,684,000, still a very low number. 

The U.S. international trade deficit widened slightly in March to -$50.0 billion. March exports increased by $2.1 billion, while imports increased by $2.8 billion. The March trade data implies a slight negative revision to first quarter GDP if all else remains unchanged. 

It appears that a rift is opening up in the U.S.-China trade talks. The uncertainties around the trade talks with China may reinforce volatility in the trade data. Volatile trade data may end up being a lever on GDP growth again this year. Even with the possibility of trade deals with China and others, U.S. exporters face the headwind of a strong dollar. 

Total mortgage applications increased by 2.7 percent for the week ending May 3. Purchase apps rebounded by 4.2 percent after sliding the previous two weeks. Refi apps were up by 0.8 percent, ending a four-week slide. On a four-week moving average basis, refi activity is still up 15.9 percent from a year ago. Purchase apps are up 3.8 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage ticked down to 4.41 percent in early May. 

Railcar loadings were up by 0.5 percent for the week ending May 4, and are up by 1.0 percent over previous 12 months. 

The Federal Reserve is showing no signs of losing “patience” as it prepares for the next Federal Open Market Committee meeting over June 18-19. We expect the Fed to leave the fed funds rate unchanged for the remainder of this year. According to the fed funds futures market, the implied probability of no change to the fed funds rate in June is 90 percent. The market still thinks that the odds of a rate cut by the end of this year are significant, at about 60 percent. For now, we will maintain our flat-line fed funds rate forecast. 

For a PDF version of this report, click here:  Comerica Economic Weekly, May 10, 2019 

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

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Comerica Economic Weekly, May 3, 2019

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

U.S. economic data at the beginning of May was generally positive, but mixed. Labor data continues to shine after a weak February, but both ISM indexes eased to still-positive levels. 

Payroll job growth in April was stronger than expected, with a net gain of 263,000 jobs. The unemployment rate fell to 3.6 percent due to a large 490,000 worker drop in the labor force. The April unemployment rate is the lowest since December 1969. Average hourly earnings were up 6 cents, or 0.2 percent for the month. Over the last year, average hourly earnings were up by 3.2 percent.

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

The ISM Manufacturing Index eased in April to a still-positive 52.8 percent, down from 55.3 in March. Seven out of ten sub-indexes were positive in April, including new orders, production and employment, but all three of those categories saw slowing activity. New orders fell from a strong 57.4 in March to 51.7 in April, still positive but close to the break-even 50 mark. The sub-indexes for customers inventories, new export orders and imports were all below 50. Thirteen out of eighteen industries reported expansion in April. The five industries reporting contraction were apparel, leather and allied products, primary metals, wood products, petroleum and transportation equipment. Anecdotal comments were mostly positive, some cited concerns about the U.S.-Mexico border situation. 

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

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

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

The S&P CoreLogic Case-Shiller U.S. National Home Price Index increased by 4.0 percent in February over the previous 12 months.

For a PDF version of this report, click here:  Comerica Economic Weekly, May 3, 2019

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

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Comerica Economic Weekly, April 29, 2019

April 29, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Recent U.S. economic data continues to look more positive after a winter “soft patch.”

First quarter real GDP growth came in much stronger than expected at a 3.2 percent annualized growth rate. Our concerns about weak consumer spending and soft investment numbers were justified. However, inventories, trade and state and local government spending were all positives. So we will call the Q1 GDP report mixed with a positive headline. 

Weak retail spending over the winter was a major concern for Q1 GDP growth. Real consumer spending increased by just 1.2 percent in Q1 and added just 0.82 percentage points to overall GDP. This was the weakest push from consumers since the first quarter of 2018. Nonresidential fixed investment was modest, increasing at a 2.7 percent annualized rate in Q1, and adding about 0.38 percent to real GDP growth for the quarter. Residential investment contracted for the fifth consecutive quarter, falling at a 2.8 percent annualized rate. This subtracted 0.11 percent from the headline growth rate in Q1. 

Inventory accumulation was very strong in Q1, up by $128 billion ($2012) after strong gains in 2018Q3 and Q4. Inventories accounted for 0.65 percent of the 3.2 percent total growth rate for the economy in Q1. The strong push from inventories cannot continue indefinitely. It will eventually be followed by an inventory drawdown which will subtract significantly from GDP growth. 

The U.S. international trade gap narrowed in the first quarter, adding about 1.03 percentage points to headline GDP growth. 

Federal government spending was unchanged in Q1. However, state and local government spending was very strong, increasing at an unsustainable 3.9 percent annualized rate. In total, government spending added 0.41 percent to headline GDP. 

Nominal personal income increased by only 0.1 percent in March. After adjusting for taxes and inflation, real disposable personal income fell by 0.2 percent. This is the third consecutive month of flat-to-down real DPI. Real consumer spending jumped by 0.7 percent in March.

Home sales were mixed in March as existing home sales fell while new home sales increased. 

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

New home sales increased by 4.5 percent in March, to a 692,000 unit annual rate. This is the strongest monthly sales rate since November 2017. Sales of new homes increased across three of the four census regions in March. New home sales declined in the Northeast. The months’ supply of new homes for sales fell to 6.0 in March, down from 7.4 months’ worth in December. 

Initial claims for unemployment insurance increased by 37,000 for the week ending April 20, to hit 230,000. This is still a very low level, but it is a note worthy weekly increase. Continuing claims increased by 1,000 for the week ending April 13, to hit 1,655,000. 

We expect to see no changes in monetary policy as a result of the Federal Open Market Committee meeting over Tuesday and Wednesday. We expect the Fed to remain in a holding pattern, leaving interest rates unchanged for the rest of this year. 

For a PDF version of this report, click here:  Comerica Economic Weekly, April 29, 2019

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

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Comerica Economic Weekly, April 19, 2019

April 19, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Recent U.S. economic data for February and March has been more positive following a soft patch that extended from the fourth quarter of 2018 into the first quarter of 2019. Because of the improved data we now believe that Q1 real GDP growth will still be weak, but likely not as weak as our April forecast where we show just 0.6 percent real GDP growth. We could add about 0.5-1.0 percent to Q1 real GDP growth based on improved data. Conversely, with a slightly stronger Q1, we would shave off about the same amount from the rebound we show in Q2. 

In addition to marginally stronger Q1 GDP growth, we believe that the likelihood of a U.S. recession in the next 12 months has declined, but remains elevated above a baseline level of about 15 percent. We currently place the odds of a U.S. recession within the next 12 months at about 30 percent. 

The Conference Board’s Leading Economic Index for March increased by 0.4 percent. This is the strongest reading for the Leading Index since last September. Eight out of ten factors were positive for the Leading Index in March. The biggest positives were unemployment insurance claims (inverted), consumer expectations for business conditions and the Leading Credit Index. 

Retail sales were strong in March, increasing by 1.6 percent for the month after a soft February, when sales declined by 0.2 percent. A rebound in vehicle sales and higher gasoline prices both helped in March. 

Housing starts for March eased by 0.3 percent, to a 1,139,000 annual unit rate. Both single and multifamily starts dipped for the month. Permits for new construction decreased by 1.7 percent, to a 1,269,000 annual unit rate. We expect lower mortgage rates to stimulate sales this spring, adding motivation for builders. 

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

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

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

Total rail traffic was well down in Q1 on a year-ago basis. Data in early April is looking more positive. We expect the Federal Reserve to remain “patient” at the April 30/May 1 meeting and keep the fed funds rate unchanged from the current 2.25-2.50 percent.

For a PDF version of this report, click here:  Comerica Economic Weekly, April 19, 2019

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

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Comerica Economic Weekly, April, 12, 2019

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

U.S. inflation metrics were pushed by energy prices in March, but core inflation remained calm.

Tightening global supply in early 2019 has boosted the price for West Texas Intermediate crude oil from a low of about $43.50 per barrel on December 24, to about $64.15 today. This is still well below the recent peak of about $75.50 from early October 2018, and near the $61-$62 prices from a year ago. If crude remains at or above current prices through April, then energy will again provide a temporary boost to April PPI and CPI.

The national average price for regular unleaded gasoline increased to $2.81 per gallon today. Some regional markets, particularly California, are seeing much higher prices. A year ago gasoline was $2.70 per gallon.

The Producer Price Index for final demand increased by 0.6 percent in March, the strongest monthly gain since last October. Over the 12 months ending in March, headline PPI was up by 2.2 percent, well below the recent peak yearly gain of 3.4 percent from last July. The energy price sub-index gained 5.6 percent in March, the strongest monthly gain in that series since it began in December 2009. Core PPI, defined as final demand less food, energy and trade, was unchanged in March after a weak 0.1 percent gain in February. Over the previous 12 months, core PPI has increased by 2.0 percent.

The headline Consumer Price Index increased by 0.4 percent in March. The 6.5 percent increase in the CPI for gasoline pushed the energy sub-index up by 3.5 percent in March. Food prices have also warmed up, gaining 0.3 percent in March after a 0.4 percent increase in February. Core CPI (all items less food and energy) remained calm, inching up by 0.1 percent in March after a similar weak gain in February. Over the 12 months ending in March, core CPI was up by 2.0 percent, while headline CPI was up by 1.9 percent.

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

The JOLTS survey for February showed that the job openings rate fell for the month, likely related to the government shutdown through January. Recent labor data shows a bounce back in hiring in March.

Total mortgage applications eased a bit in early April after a strong run through March. Refis surged through March as mortgage rates dropped, so a little give-back in early April is to be expected. Purchase apps were up by 0.5 percent in early April, posting their fifth consecutive weekly gain. On a four-week moving-average basis, refis are up 27.9 percent over the previous 12 months, while purchase apps are up 6.6 percent. According to the MBA, the rate for a 30-year fixed-rate mortgage firmed to 4.40 percent in early April.

According to the National Federation of Independent Business, small business optimism firmed slightly in March after falling for six consecutive months since last September.

The minutes from the FOMC meeting over March 19/20 contained no surprises. We expect the Federal Reserve to remain “patient” at the April 30/May 1 meeting and keep the fed funds rate unchanged from the current 2.25-2.50 percent.

For a PDF Version of this report click here: Comerica Economic Weekly, April 12, 2019.

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

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Comerica Economic Weekly, April 5, 2019

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

The big story for the U.S. economy this week was the rebound in payroll job growth for March, following a very weak February gain. Other U.S. data was mixed, consistent with soft first quarter GDP growth.

U.S. payrolls expanded by a solid 196,000 in March. The weak February gain, initially reported at +20,000, was revised up to a still-weak +33,000. January payrolls were also revised up slightly. The unemployment rate held steady at 3.8 percent for the second month. Average hourly earnings increased modestly, up 4 cents for the month, and 3.2 percent over the previous 12 months. This is down slightly from the 3.4 percent year-over-year gain in earnings reported in February, but the trend in earnings still looks like it is increasing. The labor force participation rate eased to 63.0 percent, little changed over the past 12 months. 

New orders for durable manufactured goods decreased by 1.6 percent in February, held down by volatile commercial aircraft orders. Boeing’s recent problems may  have an impact on that component. 

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

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

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

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

The Fed will digest the news and remain “patient” at the upcoming FOMC meeting over April 30/May 1, leaving the fed funds rate range unchanged from the current 2.25-2.50 percent. We expect no other major announcements from the Fed in the near term.

For a PDF version of this report, click here:  Comerica Economic Weekly, April 5, 2019

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

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Comerica Economic Weekly, March 29, 2019

March 29, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

Economic data from this week was mixed, consistent with our expectation that U.S. economic growth cooled through the fourth quarter of last year, and continued to cool into the first quarter of this year. Housing data show that lower mortgage rates are having a positive impact on home sales.

The third estimate of 2018Q4 real GDP growth was revised down to show a 2.2 percent annualized growth rate. The first estimate of Q4 GDP showed a 2.6 percent growth rate. Given our estimate of 1.5-2.0 percent real GDP growth for 2019Q1, we expect to see the third consecutive step down in real GDP growth for the now-complete first quarter.

Total corporate profits from current production (after inventory valuation and capital consumption adjustment) fell by $9.7 billion in Q4 after a strong $78.2 billion increase in Q3. Total profits were pulled down by financial firms. Nonfinancial corporate profits expanded by $13.6 billion in Q4, the weakest quarterly gain of 2018. We remain concerned about the potential for a corporate profit squeeze this year due to higher labor and capital costs and flat pricing.

Nominal personal income increased by 0.2 percent in February after falling by 0.1 percent in January, likely influenced by the Federal government shutdown. We did not get a PCE price index for February or estimates for real and nominal consumer spending.

New home sales for February increased by 4.9 percent, motivated by falling mortgage rates. The months’ supply of new homes for sales dipped from 6.5 month’s worth in January, to 6.1 in February. Further declines in mortgage rates through March will help to shore up the housing market which sagged through 2018.

Total mortgage applications were strong for the week ending March 22 as both purchase and refi apps increased. On a 4-week moving average basis, refi apps are gaining momentum and have now caught up slightly  compared to their year-ago levels. Purchase apps are up by 1.8 percent from a year ago.  According to the Mortgage Bankers Association the rate for a 30-year fixed rate mortgage is down to 4.45 percent. Five-year ARMs are down to 3.77 percent.

After spiking in January, single-family housing starts reset in February, pulling the headline number down. Total housing starts fell by 8.7 percent in February to a 1,162,000 unit annual rate. Total permits for new residential construction eased by 1.6 percent in February.

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

The U.S. international trade gap narrowed significantly in January, to -$51.1 billion, from December’s -$59.9 billion. Trade data was quirky through 2018 and into early 2019 as trade wars motivated companies to front-load shipments ahead of new tariffs. This led to strong months followed by weak months for both imports and exports.  As it stands now, trade should be supportive for 2019Q1 GDP. Exports increased by $1.9 billion in January, while imports dropped by $6.8 billion.

Consumer confidence fell noticeably in March according to The Conference Board. We expect lower mortgage rates to win the battle against lower consumer confidence in March.

For a PDF version of the report, click here: Comerica Economic Weekly, March 29, 2019.

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

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Comerica Economic Weekly, March 22, 2019

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

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

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

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

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

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

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

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

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

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

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

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Comerica Economic Weekly, March 15, 2019

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Comerica Economic Weekly, March 8, 2019

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

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

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

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

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

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

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

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

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

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

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

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

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Comerica Economic Weekly, March 4, 2019

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Comerica Economic Weekly, February 22, 2019

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

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

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

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

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

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

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

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

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

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

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

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Comerica Economic Weekly, February 15, 2019

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

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

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

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

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

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

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

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

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

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

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

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

Job openings in December hit an all-time high.

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

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

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Comerica Economic Weekly, February 8, 2019

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

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

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

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

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

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

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

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

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

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

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

 

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Comerica Economic Weekly, February 1, 2019

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

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

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

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

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

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

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

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

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

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

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

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Comerica Economic Weekly, January 25, 2019

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

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

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

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

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

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

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

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

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

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

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

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

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Comerica Economic Weekly, January 18, 2019

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

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

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

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

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

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

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

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

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

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

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

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



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

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

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Comerica Economic Weekly, January 11, 2019

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

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

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

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

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

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

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

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

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

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

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

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

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

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Comerica Economic Weekly, January 4, 2019

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

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

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

The surprising BLS jobs report for December showed a robust net gain of 312,000 new jobs for the month. November and October payrolls were revised up by 58,000 jobs. The average work week for December increased from 34.4 to 34.5 hours. Average hourly earnings increased by 11 cents or 0.4 percent from November and were up by 3.2 percent over the previous 12 months, a new high for this cycle. The unemployment rate ticked up to 3.9 percent with a large increase in the labor force. The very strong official BLS payroll data was corroborated by a strong ADP Report for December that showed a net gain of 271,000 private-sector jobs for the month. 

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

Initial claims for unemployment insurance increased by 10,000 for the week ending December 29, to hit a still-low 231,000. It looks like the series is lifting after its September low. Continuing claims increased by 32,000 for the week ending December 22, to hit 1,740,000.

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

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

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

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

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

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Comerica Economic Weekly, December 21, 2018

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Comerica Economic Weekly, December 14, 2018

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

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

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

U.S. nominal retail sales for November increased by a modest 0.2 percent for the month despite very favorable conditions for consumers. The culprit was gasoline as the average monthly price for unleaded fell 6.5 percent in November to $2.70. December gasoline prices have declined even more, so gasoline looks like it will be a drag on nominal retail sales in December as well. Retail sales excluding gasoline increased by a respectable 0.5 percent in November. We expect holiday shopping metrics to be good this season.

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

The Consumer Price Index for November was unchanged as lower energy prices counteracted moderate consumer price inflation elsewhere. Over the previous 12 months, headline CPI was up by 2.2 percent, well below the 2.9 percent year-over-year gain from mid-summer. Core CPI increased by 0.2 percent for the month, and was up by 2.2 percent over the previous 12 months. 

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

Total mortgage applications were up by 1.6 percent for the week ending December 7 as both purchase and refi apps increased. Purchase apps were up by 2.5 percent, their fourth consecutive weekly gain. Refi apps increased by 1.8 percent for the week, after increasing in the previous two weeks. On a four-week moving average basis, refi apps are down 36.2 percent from a year ago while purchase apps are down by just 0.2 percent. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage fell for the third consecutive week, to 4.96 percent.

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

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

 

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

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

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Comerica Economic Weekly, December 7, 2018

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

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

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

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

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

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

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

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

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

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

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

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

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

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