Comerica Economic Weekly

August 11, 2017
By Daniel Sanabria

Economic data for the week were consistent with an ongoing moderate GDP expansion through the third quarter. Inflation data, from the CPI and the PPI will be scrutinized this fall to see if there is a pickup in the rate of inflation. Weak energy prices are expected to gradually firm up as excess inventories are absorbed through 2018.

The headline Consumer Price Index increased by 0.1 percent in July, a little less than expected. Soft energy prices kept the headline number in check. Over the 12 months ending in July, the CPI is up by 1.7 percent.

Producer price inflation was also weaker than expected in July, held down by energy and services. The Producer Price Index for final demand declined by 0.1 percent in July. Over the previous 12 months, the headline index was up 1.9 percent, well below the peak year-over-year rate of 2.5 percent in April.

Initial claims for unemployment insurance gained 3,000 to hit 244,000 for the week ending August 5. Continuing claims dropped by 16,000, to reach 1,951,000 for the week ending July 29. The four-week moving averages for both series remain very low, indicating tight labor market conditions.

The Job Openings and Labor Turnover Survey for June also showed tight labor market conditions. The job openings rate returned to the all-time high of 4 percent. The separations rate remains lower than the openings rate, staying at 3.6 percent in June.

Labor productivity increased at a 0.9 percent annualized rate in the second quarter. This was an improvement from the very weak 0.1 percent gain in the first quarter, but it is still somewhat low. Over the year ending in Q2, labor productivity increased by 1.2 percent. Low productivity growth is correlated with low wage growth. It can also be a characteristic of a late-cycle economy.

Mortgage applications increased in the week ending August 4 as refi activity picked up. Purchase apps look soft since early July, implying lackluster new and existing home sales for the month. The rate on a 30-year fixed rate mortgage eased to 4.14 percent, down from 4.22 percent in mid-July, motivating refis.

The July 2017 Senior Loan Officer Opinion Survey from the Federal Reserve shows that lending standards for C&I loans were unchanged, but standards tightened for commercial real estate in the second quarter. Loan demand eased for most broad credit categories.

Consumer credit increased by $12.4 billion in June, driven by an $8.3 billion increase in nonrevolving credit. Gains in nonrevolving credit (including auto loans) are winding down. In June, nonrevolving consumer credit was up by 5.8 percent over the previous 12 months. The peak 12-month gain in this business cycle was 8.8 percent in February 2013.

According to the fed funds futures market, the implied probability of a December fed funds rate hike is about 44 percent.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: Comerica_Economic_Weekly_ 08112017.


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