U.S. economic indicators were mostly positive this week, reinforcing expectations for a good 2018Q1.
Payroll jobs growth beat expectations of about 180,000 in January, posting a 200,000 job net gain. The unemployment rate remained at 4.1 percent for the fourth consecutive month. Average hourly earnings increased by 0.3 percent for the month, and were up by 2.9 percent over the previous year showing some upward pressure on wages consistent with the low unemployment rate.
Initial claims for unemployment insurance dipped by 1,000, to hit 230,000 for the week ending January 27. Continuing claims gained 13,000 to hit 1,953,000 for the week ending January 20. Still a very good number.
Nonfarm business productivity decreased by 0.1 percent in 2017Q4. Productivity growth is still weak. Given tight labor market conditions and high business confidence, we expect to see strong business investment in early 2018 which will help to pull the productivity numbers up later in the year.
Personal income gained 0.4 percent in December with strength in wages and salaries. After adjusting for inflation and taxes, real disposable income was up by 0.2 percent. Real consumer spending increased by 0.3 percent for the month. The PCE price index was up 0.1 percent for the month and 1.7 percent for 12 months. The personal saving rate fell to 2.4 percent in December. The saving rate declined significantly in 2016 and 2017. It is now approaching the pre-recession record low of 1.9 percent from July 2005.
Auto sales fell to a 17.2 million unit rate in January. This is still a good number but it does represent a significant drop from the hurricane induced surge in sales last fall. We expect auto sales to ease a little more in the months ahead, but strong U.S. economic conditions are a positive.
Manufacturing conditions remain positive. The ISM Manufacturing Index eased to a still-strong 59.1 in January. Nine out of ten sub-indexes were above the break-even 50 mark, including new orders, production and employment.
Spending on construction projects increased by 0.7 percent in December. Private residential construction spending was up by 0.5 percent with support from multifamily projects. Private nonresidential spending gained 1.1 percent for the month with help from office projects. Total public construction spending was up by 0.3 percent.
The Case-Shiller U.S. National House Price Index for November was up by 6.2 percent over the previous 12 months. Seattle and Las Vegas posted low double-digit annual gains. Chicago is the laggard among the 20 cities, showing just 3.6 percent price appreciation over the 12 months ending in November.
The positive economic data adds to the expectation that the Federal Reserve will increase the fed funds rate range by 25 basis points, to 1.50-1.75 percent, at the conclusion of the March 20/21 FOMC meeting. The implied probability of a March 21 fed funds rate hike is now up to 77 percent according to the CME Group. Also on March 21, we will see another dot plot from the FOMC showing members’ expectations for the fed funds rate over 2018 and 2019. This will be the first dot plot from the Powell Fed. With wages starting to show more consistent upward pressure it will be interesting to see if the dot plot shifts up, to be consistent with four rates hikes in 2018, not the three implied by the December dot plot.
For a PDF version of this report click here: Comerica_Economic_Weekly_02022018.
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