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Comerica Economic Weekly

December 2, 2016
By Daniel Sanabria

Since we had the holiday week last week, we will cover two weeks’ worth of U.S. economic data, which has been generally favorable.

Expectations for the official payroll job numbers for November were boosted by a stronger-than-expected ADP Employment Report, which showed 216,000 private sector jobs added in November. The official BLS payroll report did not quite get there, showing 178,000 net new jobs added to the U.S. economy in November. The unemployment rate dropped more than expected, down to 4.6 percent from October’s 4.9 percent. Average hourly earnings dipped by 3 cents in November after gaining 11 cents in October. Over the previous 12 months, average hourly earnings were up by 2.5 percent. Average weekly hours were unchanged at 34.4.

Initial claims for unemployment insurance for the week ending November 26 increased by 17,000, to hit a still-low 268,000. Weekly data around holidays is always suspect due to seasonal adjustment.

Third quarter real GDP was revised to show an annualized growth rate of 3.2 percent, up from the initial estimate of 2.9 percent. We expect to see a similar near-3-percent growth rate for the fourth quarter when that data is published at the end of January.

The Conference Board’s Leading Economic index increased by 0.1 percent in October. We expect to see a stronger gain in November.

Real disposable income increased by a solid 0.4 percent in October. Real consumer spending gained 0.1 percent. The 12-month change in the personal consumption expenditure (PCE) price index increased to 1.4 percent, showing that the rate of inflation is warming up.

Auto sales for November were better than expected, dipping slightly to a 17.9 million unit sales rate as domestic truck sales eased.

Consumer confidence jumped in November. The Conference Board’s Consumer Confidence Index increased from 100.8 in October to 107.1. This is good news for fourth quarter consumer spending.

Existing home sales for October increased by 2.0 percent to hit a 5.6 million unit annual rate. The months’ supply of existing homes for sale dipped to 4.3 months’ worth, indicating tight conditions in most U.S. markets. New home sales for October eased by 1.9 percent to a 563,000 unit rate. The months’ supply of new homes for sale increased to 5.2 months’ worth, up from the July low of 4.6 months’ worth. Home prices increased more than expected in September. The Case-Shiller U.S. National House Price Index was up 0.8 percent in September (after seasonal adjustment) and was up 5.5 percent over the previous 12 months. Recent increases in home mortgage rates will be a headwind for first-time buyers.

Total construction spending increased by 0.5 percent in October, boosted by a 2.8 percent increase in spending on public projects.

The ISM Manufacturing Index for November firmed up to 53.2 percent, indicating improving conditions for U.S. manufacturers. New orders for durable goods increased by 4.8 percent in October with large gains in the typically volatile aircraft categories, both civilian and military. The “core” category, nondefense capital goods excluding aircraft, increased by 0.4 percent for the month.

The minutes of the November 1-2 Federal Open Market Committee meeting reinforced expectations for a 25-basis-point increase in the fed funds rate range at the next FOMC meeting, coming up over December 13-14. We expect to see a rate hike on December 14. We look for two more in 2017. However, the early speculation about Trumponomics suggests that the risk to our interest rate outlook for 2017 and 2018 is shifting to the upside.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: cmaeconweekly-12-02-2016.