Comerica Economic Weekly, March 29, 2019

Robert A. Dye, Ph.D.


Daniel Sanabria

Image of a building on a river in Scottsdale, Arizona

Economic data from this week was mixed, consistent with our expectation that U.S. economic growth cooled through the fourth quarter of last year...

Economic data from this week was mixed, consistent with our expectation that U.S. economic growth cooled through the fourth quarter of last year, and continued to cool into the first quarter of this year. Housing data show that lower mortgage rates are having a positive impact on home sales.

The third estimate of 2018Q4 real GDP growth was revised down to show a 2.2 percent annualized growth rate. The first estimate of Q4 GDP showed a 2.6 percent growth rate. Given our estimate of 1.5-2.0 percent real GDP growth for 2019Q1, we expect to see the third consecutive step down in real GDP growth for the now-complete first quarter.

Total corporate profits from current production (after inventory valuation and capital consumption adjustment) fell by $9.7 billion in Q4 after a strong $78.2 billion increase in Q3. Total profits were pulled down by financial firms. Nonfinancial corporate profits expanded by $13.6 billion in Q4, the weakest quarterly gain of 2018. We remain concerned about the potential for a corporate profit squeeze this year due to higher labor and capital costs and flat pricing.

Nominal personal income increased by 0.2 percent in February after falling by 0.1 percent in January, likely influenced by the Federal government shutdown. We did not get a PCE price index for February or estimates for real and nominal consumer spending.

New home sales for February increased by 4.9 percent, motivated by falling mortgage rates. The months’ supply of new homes for sales dipped from 6.5 month’s worth in January, to 6.1 in February. Further declines in mortgage rates through March will help to shore up the housing market which sagged through 2018.

Total mortgage applications were strong for the week ending March 22 as both purchase and refi apps increased. On a 4-week moving average basis, refi apps are gaining momentum and have now caught up slightly  compared to their year-ago levels. Purchase apps are up by 1.8 percent from a year ago.  According to the Mortgage Bankers Association the rate for a 30-year fixed rate mortgage is down to 4.45 percent. Five-year ARMs are down to 3.77 percent.

After spiking in January, single-family housing starts reset in February, pulling the headline number down. Total housing starts fell by 8.7 percent in February to a 1,162,000 unit annual rate. Total permits for new residential construction eased by 1.6 percent in February.

The Case-Shiller U.S. National Home Price Index, seasonally adjusted, increased by 0.2 percent in January, pulling the 12-month gain down to 4.3 percent. Momentum in house price growth is clearly easing across most U.S. cities. Las Vegas stands out, still showing a strong 10.5 percent year-over-year gain in January. But previously hot San Diego is down to a 1.3 percent year-over-year increase, and San Francisco is down to 1.8 percent.

The U.S. international trade gap narrowed significantly in January, to -$51.1 billion, from December’s -$59.9 billion. Trade data was quirky through 2018 and into early 2019 as trade wars motivated companies to front-load shipments ahead of new tariffs. This led to strong months followed by weak months for both imports and exports.  As it stands now, trade should be supportive for 2019Q1 GDP. Exports increased by $1.9 billion in January, while imports dropped by $6.8 billion.

Consumer confidence fell noticeably in March according to The Conference Board. We expect lower mortgage rates to win the battle against lower consumer confidence in March.

For a PDF version of the report, click here: Comerica Economic Weekly, March 29, 2019.

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although the information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

March 29, 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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