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It was an interesting week in the econo-sphere punctuated by a challenging January jobs report and an apparent shift in the Federal Reserve's posture.



Comerica Economic Weekly, February 1, 2019

February 1, 2019
By Robert A. Dye, Ph.D., Daniel Sanabria

It was an interesting week in the econo-sphere punctuated by a challenging January jobs report and an apparent shift in the Federal Reserve’s posture.

The official Bureau of Labor Statistics employment report for the month of January was especially muddy, due to a combination of factors that challenges all but the broadest conclusions. The establishment survey showed that January payrolls increased by a very strong 304,000.  December payrolls, which were previously reported as up by 312,000, were revised down significantly, to now show a gain of 222,000. According to the BLS, furloughed federal workers were counted as employed in January because they will eventually get paid. The average workweek was unchanged at 34.5 hours. Average hourly earnings increased by 3 cents for a 3.2 percent year-over-year gain. Even though furloughed federal government workers were counted as employed in the establishment survey, they were counted as unemployed in the household survey which gives us the unemployment rate. The household survey of employment dropped by 251,000 jobs in January, causing the unemployment rate to tick up to 4.0 percent. Beyond the inconsistent interpretation of furloughed government workers, there were other mechanical issues with the January employment report that should caution against a strict analysis.

The ISM Manufacturing Index increased from 54.3 in December to 56.6 in January, showing improving conditions for the manufacturing sector. New orders and production both increased, while the employment index dropped slightly. Anecdotal comments were generally   positive. Fourteen out of 18 industries reported growth.

According to The Conference Board, U.S. consumer confidence fell again in January after a noticeable decline in December. The index now stands at a still-positive 120.2. 

New home sales rebounded in November, up strongly, by 16.9 percent to a 657,000 unit annual rate. This was the strongest sales rate since last March. 

The Case-Shiller U.S. National House Price Index for November showed a 5.2 percent gain over the previous year. Most of the 20 key cities showed month-over month price gains, with the exceptions of Cleveland, San Francisco and Seattle.

Mortgage apps eased through the second half of January. For the week ending January 25, purchase apps fell by 2.3 percent while refi apps gave up 5.5 percent. On a four-week moving average basis, refis are down 16.7 percent from a year ago. Purchase apps are up 6 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage ticked up slightly to 4.76 percent in late January.

The Federal Reserve left the fed funds rate range unchanged at 2.25-2.50 percent at the FOMC meeting over January 29/30. Fed Chairman Jay Powell emphasized the Fed’s patient posture and sounded more dovish than he did last fall. Powell implied that the Fed’s balance sheet run-off program may end this year, leaving the Fed’s balance in the neighborhood of $3.5 trillion dollars. Powell also said that the Fed has decided to leave the mechanisms for controlling the fed funds rate unchanged. Powell also acknowledged that balance sheet expansion remains in the Fed’s arsenal for fighting a future economic slowdown. Financial markets responded positively to the news.

For a PDF version of this report, click here:  Comerica Economic Weekly, February 1, 2019

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