Comerica Economic Weekly, June 28, 2019

Robert A. Dye, Ph.D.


Daniel Sanabria

Federal Reserve Building

Economic data released this week was mixed and consistent with overwhelming markets expectations of at least a 25 basis point fed funds rate cut on July 31.

Economic data released this week was mixed and consistent with overwhelming markets expectations of at least a 25 basis point fed funds rate cut on July 31.

Nominal personal income increased by a solid 0.5 percent in May, just as it did in April. May income growth was supported by interest income, up by 2.3 percent for the month, reflecting higher interest rates. Wages and salaries, accounting for about half of personal income, increased by a sedate 0.2 percent. Inflation was moderate in May, with the personal consumption expenditure (PCE) price index gaining 0.2 percent for the month. Over the year ending in May, the headline PCE price index is up by a tepid 1.5 percent. The core PCE price index (excluding food and energy) was also up by 0.2 percent for the month and 1.6 percent for the 12 months ending in May. After adjusting for inflation and taxes, real personal disposable income was up by a moderate 0.3 percent in May. Real consumer spending increased by a moderate 0.2 percent in May, pushed by a rebound in auto sales. We expect consumer spending to be supportive of moderate real GDP growth in the second quarter.

The Conference Board’s Consumer Confidence Index fell noticeably in June, down 9.8 points to 121.5. This is well below the high from last October of 137.9. Consumer confidence does not equal consumer spending, but it is certainly a factor in discretionary purchases as cars and houses most often are.

New orders for durable goods decreased by $3.3 billion in May, or 1.3 percent. The headline series has been flattish since late 2017. Delays and cancellations of orders at Boeing are keeping the transportation equipment category subdued. Core new orders (nondefense capital goods excluding aircraft) were up by 0.4 percent in May after losing 1.0 percent in April. U.S. manufacturing indicators are generally showing little momentum heading into the second half of the year.

Initial claims for unemployment insurance increased by 10,000 for the week ending June 22, to hit 227,000, still well within its recent range. Continuing claims were up by 22,000 for the week ending June 15, reaching 1,688,000, consistent with tight labor markets.

New home sales fell by 7.8 percent in May, down to a 626,000 unit annual rate. This is the weakest monthly sales rate so far this year. The months’ supply of new homes for sale swelled to 6.4 months’ worth, consistent with reports of lower builder confidence.

The Case-Shiller U.S. National Home Price Index increased by 0.3 percent in April after seasonal adjustment. Over the previous 12 months, the index is up by 3.5 percent. This is the weakest yearly gain since September 2012. So far, house prices have not accelerated in response to lower mortgage rates. Most of the 20 cities tracked by the Case-Shiller index are showing subdued yearly gains. Las Vegas still leads the 20-city pack, up 7.1 percent for the year. Seattle is the weakest area, going unchanged over the previous 12 months.

Lower mortgage rates are fueling a surge in mortgage refinance. Purchasing activity is getting some support from lower rates, but remains relatively subdued. Total mortgage applications were up by 1.3 percent for the week ending June 21, driven by a 3.2 percent increase in refi apps. Purchase apps were down by 0.9 percent, their second weekly decline after a good week in early June. On a four-week moving average basis, refi apps are up by 75.3 percent over the last 12 months. Purchase apps are up 6.0 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage fell to 4.06 percent.

For a PDF version of this report, please click here: Comerica Economic Weekly June 28, 2019.

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June 28, 2019
Robert A. Dye, Ph.D., Senior Vice President and Chief Economist at Comerica Bank

Robert A. Dye, Ph.D.

Senior Vice President and Chief Economist
Daniel Sanabria, Senior Economist at Comerica Bank

Daniel Sanabria

Senior Economist

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