U.S. economic data released this week was generally positive, capped by a very strong employment report for February.
Nonfarm employment was up by 313,000 for the month, with upward revisions totaling 54,000 for the previous two months. Average hourly earnings were up only 0.1 percent, after gaining 0.3 percent in January. The workweek increased by a tenth to 34.5 hours. So we have a lot more workers working longer hours for more wages. This is very positive for 2018 real GDP growth.
The separate household survey of employment showed a huge 806,000 net new jobs added in February. This survey often shows periodic spikes in employment. The civilian labor force had another strong month, increasing by 785,000 after a 409,000 person gain in January. The large increases in employment by household and in the labor force offset each other in the unemployment rate calculation. The unemployment rate stayed at 4.1 percent for the fifth consecutive month. We still expect it to decrease to the upper three percent range this year.
Initial claims for unemployment insurance increased by 21,000 for the week ending March 3. The level of 231,000 is still quite low. Continuing claims fell by 64,000 for the week ending February 24, to hit a very low 1,870,000.
The ISM Non-Manufacturing Index ticked down inconsequentially, to 59.5 in February, still indicating strong business conditions for the bulk of the U.S. economy. Sixteen out of 18 industries reported expansion for the month. Anecdotal comments indicate some price pressure and supply constraints.
The U.S. international trade gap widened in January. The trade gap now stands at -$56.6 billion, the widest gap between imports and exports since October 2008. Imports were little changed in January as exports declined by $2.7 billion. U.S. energy exports have increased over the last year, but so far, the increase has not been enough to narrow the overall trade gap. The real (inflation adjusted) balance of trade in goods for January was more negative than the fourth quarter 2017 average, implying that, as of now, trade looks like it will be a drag on first quarter GDP growth. That could change with the February and March trade data.
Mortgage applications increased for the week ending March 2 by 0.3 percent, boosted by refi apps. This data is not seasonally adjusted, so we expect to see a big gain in mortgage apps this spring. Most of the gain will be in purchase apps. We expect refi apps to cool as mortgage rates increase gradually this year. According to the Mortgage Bankers Association, the contract rate for a 30-year fixed-rate mortgage increased to 4.65 percent in early March, 29 basis points above the rate of one year ago.
Commentary from various Federal Reserve officials this week was all consistent with the broad-based expectation that they will vote for another 25 basis point increase in the fed funds rate range at the upcoming FOMC meeting over March 20/21. The media blackout period for the Fed starts tomorrow, so we will not be getting any more information from the Fed until they release their monetary policy announcement at 1 pm central time on March 21.
The European Central Bank left their policy rate unchanged on March 8. They dialed down some language about asset purchases, implying less QE to come.
For a PDF version of this report click here: Comerica-Economic-Weekly-03092018.
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