Comerica Economic Weekly | February 10, 2017

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

It was a light week for U.S. data but rumblings from Washington elevated the stock market. President Trump suggested that the framework of his proposed tax overhaul would be made public soon. Also, deregulation was in the news with discussion about proposed changes to the Dodd-Frank Act.

Labor data was solid. The Jobs Openings and Labor Turnover Survey for December showed a slight dip in the job openings rate to 3.6 percent. The hiring rate was unchanged at 3.6 percent and the separation rate eased to 3.4 percent. 

Initial claims for unemployment insurance fell by 12,000 for the week ending February 4, to hit 234,000. The 4-week moving average for initial claims hit the lowest level since November 1973. Continuing claims increased by 15,000 to hit 2,078,000 for the week ending January 28, still a very low number. We show continuing claims scaled by the size of the labor force in our graph on page 2. That ratio is the lowest since the late ‘60s.

The Federal Reserve released the results of their January Senior Loan Officer Survey. Generally speaking, loan standards on commercial and industrial loans were unchanged in the fourth quarter of 2016. Standards tightened on commercial real estate loans but were unchanged for residential real estate. 

Mortgage applications increased for the week ending February 3, boosted by both purchase and refi apps. The Mortgage Bankers Association said that the rate for 30-year fixed-rate mortgages eased to 4.35 percent.

The U.S. international trade gap narrowed in December to -$44.3 billion. Exports were up by $5 billion for the month while imports grew by $3.6 billion. This implies a 0.1 percent increase to the 1.9 percent annualized growth rate for the first estimate of 2016Q4 GDP growth. 

There was a strong build in U.S. crude oil inventories for the week ending February 3 due to a surge in imports. Gasoline inventories fell on strong demand. Natural gas storage fell in line with expectations. Natural gas inventories are down 11.3 percent from a year ago. 

According to the St. Louis Fed’s Financial Stress Index, we are unstressed with a reading of –1.21 for the week ending February 3.

For a PDF version of this report, click here:  Comerica Economic Weekly | February 10, 2017

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 12082017

December 8, 2017 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic data released this week was con-sistent with an ongoing moderate GDP expansion through the fourth quarter. While the international trade data for October was a net negative for Q4 GDP growth, we still have a decent shot at posting the third consecutive quar-ter of three percent or more GDP growth for the first time in this expansion cycle.

The U.S. international trade gap widened noticea-bly in October, by $3.8 billion, to -$48.7 billion. Exports for the month were little changed, but imports, particular-ly of goods, increased. We suspect that there may be some catchup on imports after the hurricanes slowed offloading in September. The October trade data imply a subtraction of about one percent on Q4 real GDP growth. That drag could be significantly reduced or reversed by the time we see the full set of trade data for Q4.

The payroll jobs data for November showed a stronger-than-expected gain of 228,000 for the month. Consensus expectations were about 195,000. Workers also got paid 0.2 percent more in November, and the av-erage workweek increased by 0.1 hours. We had the em-ployment trifecta for the month – more workers got paid more money for more hours – just in time for the heart of the holiday shopping season. We expect total holiday sales to be strong this year, even with some brick-and-mortar establishments seeing ongoing erosion. In addition to support from the employment, earnings and hours da-ta, holiday shopping will also be buoyed by strong con-sumer confidence and steady gains in house prices.

The November ISM Non-Manufacturing Index eased from a very strong 60.1 in October, to a still-strong 57.4. This represents ongoing growth in the nation’s ser-vice sector but at a slower rate than in October.

The solid payroll number for November removes the last vestiges of doubt about a fed funds rate increase next week on Wednesday. At this point, it would be a shock if the Fed did not increase the fed funds rate range to 1.25-1.50 percent at the conclusion of the December 12/13 Federal Open Market Committee Meeting. The fed funds futures market shows a 90.2 percent implied proba-bility of a fed funds rate hike this Wednesday. On Wednesday we will also see a new set of economic pro-jections from the Fed and a new “dot plot” showing FOMC member’s expectations for the fed funds rate over the next few years. We should discount the information in Wednesday’s dot plot more than usual given the turnover in leadership at the Fed. Wednesday will also feature Ja-net Yellen’s last post-FOMC-meeting press conference as chairwoman of the FOMC.

The U.S. Senate and House of Representatives have both passed versions of tax reform. Those bills have been sent to a conference committee for reconciliation and to tie up unintended loopholes and other errors. The conference report will be sent back to the Senate and House for a final vote, possibly before the end of this year. We expect tax reform to be signed into law soon.

For a PDF version of this report click here: Comerica_Economic_Weekly 12082017.

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 11172017

November 17, 2017 by Robert A. Dye, Ph.D., Daniel Sanabria

October and early November economic data released this week are consistent with our expectation of about 3 percent real GDP growth for the fourth quarter.

The National Federation of Independent Business’ Small Business Optimism Index increased moderately in October, up to 103.8 from 103.0. Tax reform does not explicitly show up in the survey, but we suspect that it contributed to increased business confidence in October.

Housing starts for October jumped by 13.7 percent, to a 1,290,000 unit annual rate. Single-family starts tied their post-recession peak from last February at an 877,000 unit rate. Multifamily starts jumped by 38 percent to a 413,000 unit rate, still well below their post-recession peak. Total permits gained 5.9 percent, to a 1,297,000 unit rate, extending a positive trend for single-family permits. Multifamily permits still look range bound.

Industrial production increased by a strong 0.9 percent in October as operations returned to normal after the Q3 hurricanes. Manufacturing output was up by 1.3 percent. Vehicles assemblies increased by 1.7 percent, but remained below the 2016 peak.

Initial claims for unemployment insurance increased by 10,000, to hit 249,000 for the week ending November 11. Continuing claims dropped by 44,000 for the week ending November 4, to hit 1,860,000. Volatility has been up due to the hurricanes, but trends look good.

Retail sales for October were soft, as expected, increasing by just 0.2 percent for the month. Lower gasoline prices resulted in a 1.2 percent decline in service station sales. We look for a good holiday shopping season this winter, supported by solid job growth, good house price appreciation and high consumer confidence.

The Consumer Price Index for October increased by just 0.1 percent, held down by lower energy prices.  Excluding food and energy, core CPI was up 0.2 percent in October, and up 1.8 percent over the previous 12-month period. Headline CPI was up 2.0 percent over the previous 12 months.

The headline Producer Price Index for Final Demand increased by a strong 0.4 percent for the month, driven by a large increase in trade services, which reflects margins of wholesalers and retailers. Over the previous 12 months the headline PPI for Final Demand was up by 2.8 percent. Core PPI was up by 2.3 percent for the year.

The U.S. House of Representatives passed the GOP tax bill on November 16 by a vote of 227 in favor, 205 against. The Senate has not yet passed its version of a tax plan. The current Senate version contains many differences from the House plan, including a repeal of the Affordable Care Act’s individual coverage mandate. A repeal of the individual coverage mandate would reduce federal spending by about $300 billion over the next 10 years, so there are significant budget implications.

We will not be publishing next week due to the Thanksgiving Holiday.

Happy Thanksgiving!

For a PDF version of this report click here: Comerica_Economic_Weekly_111717.

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 11102017

November 10, 2017 by Robert A. Dye, Ph.D., Daniel Sanabria

It was a light week for economic data. The data that did come out was consistent with our expectation of near-3-percent real GDP growth for 2017Q4.

That is not to say that nothing much happened of consequence to the U.S. economy. The House Republicans continued to work on their tax bill. We could see a final vote on their plan before Thanksgiving.

Senate Republicans worked on their own plan. The early word on the Senate plan is that they may propose delaying the implementation of a 20 percent corporate tax rate until 2019.The Senate plan also is reported to stay with seven personal income tax brackets instead of the four proposed by House Republicans. According to Senate Majority Whip John Cornyn (R, Texas), he expects the full Senate to vote on that plan the week after Thanksgiving. 

Scoring of the final House plan is crucial. The Congressional Budget office will estimate the impact of the House tax plan on the national debt. If the House tax plan is consistent with the budget agreement from early October, then the Senate will be able to use the reconciliation process for its final vote. This means that the Senate would be able to pass a tax bill with a simple majority of 51 votes instead of the normal 60.

We can reach a few conclusions from this week’s events on Capitol Hill. (1) There is obviously more negotiation needed before the House and Senate plans can be reconciled. (2) The odds of seeing a final tax bill before the end of this year still look reasonable, but are less than 100 percent. (3) Scoring of the final tax bill is subjective. We will not know with certainty the full implications of a new tax scheme until years after its implementation.

The Job Openings and Labor Turnover Survey for September showed no change in the strong job openings rate of 4.0 percent. The hiring rate for September ticked down to 3.6 percent. According to the Bureau of Labor Statistics, Hurricane Irma had no discernible effect on the JOLTS data for September.

Initial claims for unemployment insurance increased by 10,000 for the week ending November 4, to hit a still-low 239,000. Continuing claims for the week ending October 28 increased by 17,000, to hit 1,901,000.

The Federal Reserve’s Senior Loan Officer Opinion Survey for October showed easing standards for commercial and industrial loans, but tightening standards for consumer credit cards and auto loans.

For a PDF version of this report click here: Comerica_Economic_Weekly_11102017.

 

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 11032017

November 3, 2017 by Robert A. Dye, Ph.D., Daniel Sanabria

October economic data are so far consistent with an ongoing moderate GDP expansion for the U.S. in Q4.

Nonfarm payrolls bounced back by 261,000 in October, showing a clear recovery from the storm-soaked September employment report. The average workweek was unchanged at 34.4 hours in October. Average hourly earnings dipped slightly, by 1 cent. The U.S. unemployment rate dipped to 4.1 percent. 

The ISM Manufacturing Index for October ticked down slightly, to a still-strong reading of 58.7, indicating expansive manufacturing conditions. Sixteen out of 18 industries reported growth for the month and the other two reported stable conditions. Manufacturers reported disruptions due to the hurricane that are contributing to price increases. New orders, production and employment remain solidly positive. 

The ISM Non-Manufacturing Index for October increased to a strong reading of 60.1 for October. Sixteen out of 18 industries reported growth in October. Only educational services and arts/entertainment/recreation reported contraction. Anecdotal comments were positive. Some discussed the after effects of the hurricanes on construction labor, prices and auto sales. 

October auto sales data stayed strong at an 18.1 million unit rate, easing a little from the September spike to an 18.6 million unit rate. We expect to see sales  ease further as the hurricane replacement effect dissipates.

The Consumer Confidence Index increased to a strong reading of 125.9 in October, up 5.3 points from September. 

Construction spending increased by 0.3 percent in September as public construction spending gained 2.6 percent. Spending for private residential projects was unchanged for the month, likely held down by the hurricanes. Private nonresidential projects eased 0.8 percent.

The U.S. international trade gap widened a bit in September, by $0.7 billion, to hit -$43.5 billion. This will not materially impact Q3 GDP. Exports gained $2.1 billion for the month, while imports gained $2.8 billion.

Congressman Kevin Brady and Speaker Paul Ryan unveiled the House Republican tax plan on Thursday. The bill, entitled the Tax Cuts and Jobs Act of 2018, still needs to work its way through the Senate and be signed by the President. The 429-page bill contains significant changes to the U.S. tax code. On the personal income tax side it: (1) reduces brackets from seven to four, (2) nearly doubles the standard deduction, (3) eliminates the personal exemption, (4) expands credits for families, (5) ends the state/local tax deduction, (6) limits the mortgage deduction, (7) preserves 401k rules, (8) ends the alternative minimum tax, (9) phases out the estate tax. According to Speaker Ryan, the tax plan will save a typical family of four $1,182 dollars  from their annual federal tax bill. The provisions for corporate taxes would lower the rate to 20 percent, encourage repatriation of overseas profits and disincentive offshoring. 

President Trump appointed Jay Powell to be the next chairman of the Federal Open Market Committee. His first FOMC meeting as chairman will be on March 20/21, 2018. Powell began his career as lawyer, but gained significant experience as an investment banker, eventually founding Severn Capital Partners. He started his tenure on the Board of Governors of the Federal Reserve in May 2012 under then chairman Ben Bernanke. 

The Federal Open Market Committee concluded their two-day meeting on Wednesday, leaving interest rates unchanged as widely expected. Conversely the expectations for a 25 basis points increase in the fed funds rate range at the next FOMC meeting over December 12/13 are near universal. 

The Bank of England raised its benchmark bank rate by 25 basis points on Thursday, to 0.50 percent. 

For a PDF version of this report click here: Comerica_Economic_Weekly_11032017

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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