U.S. economic indicators from this week were generally positive and consistent with ongoing moderate economic growth in the third quarter. Price metrics showed warm inflation on a year-over-year basis, but recent monthly gains have been muted. Labor data remains consistent with strong hiring.
The headline Consumer Price Index increased by a moderate 0.2 percent in July, after a modest 0.1 percent increase in June. Energy was a drag in July. From February through July, the CPI has had an average monthly gain of just 0.1 percent. As of July, the 12-month increase in the CPI was 2.9 percent, and this is stoking fears of inflation. However, the recent weaker monthly increases will put a cap on the year-over-year gains this fall.
The Producer Price Index for Final Demand was unchanged in July. This was the second month of moderating price gains after a 0.5 percent surge in the PPI in May. In July we see no evidence of broad-based price pressure on industries due to tariffs. The sedate PPI report for July does not mean that there is no pressure from tariffs on individual companies, it simply means that it is not showing up in the headline PPI series. Headline PPI was up 3.3 percent in July over the previous year. We expect the 12-month gain in the PPI to decrease this fall.
Initial claims for unemployment insurance fell by 6,000, to hit 213,000 for the week ending August 4. Through July, the trend in initial claims was down, to an exceptionally low level. Continuing claims gained 29,000, to hit 1,755,000 for the week ending July 28, also still exceptionally low.
The Job Opening and Labor Turnover Survey for June showed strong labor market conditions. The job opening rate stayed at 4.3 percent, just below the all time high (since December 2000) set in April. The hiring rate ticked down to a still strong 3.8 percent in June. The quits rate remained elevated at 2.3 percent, where it has been since March. A high quits rate is regarded as a sign that workers are confident they can get another job.
Total mortgage applications fell by 2.6 percent for the week of July 27, as both purchase and refi apps eased. Refis were down 1.7 percent for the week. Purchase apps dipped by 3.1 percent, the third consecutive weekly decline. On a four-week moving average basis, purchase apps are still up 3.0 percent over a year ago. But the recent trend looks weak, consistent with a housing market that is losing some steam. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage increased to 4.84 percent.
The Federal Reserves Senior Loan Officer Opinion Survey (SLOOS) for July showed mostly positive banking conditions. The net percent of banks tightening standards for C&I loans went further into negative territory (meaning easing standards). The net percent of banks reported stronger demand for C&I loans improved. Demand for commercial real estate loans remains soft.
Wholesale inventories increased by just 0.1 percent nominally in June. This is backward looking data that implies little change to the Q2 GDP estimate. However, the weak inventory build of Q2 is relevant for the current quarter. It raises the potential for a stronger-than-expected inventory build in Q3, which is an upside risk factor for our 2.7 percent real GDP growth forecast for Q3. The Atlanta Fed’s GDPNow forecast for Q3 is significantly higher, at 4.3 percent annualized growth.
For a PDF version of this report, click here: Comerica Economic Weekly August 10, 2018
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