Economics

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Comerica Economic Weekly

September 15, 2017 by Daniel Sanabria

We are starting to see the effects of Hurricanes Harvey and Irma show up in some of the U.S. data. However, many of the storm effects are estimated by the data agencies involved. As field data is collected, these estimates will be revised in the coming months.

Retail sales data was mostly normal, but auto sales fell more than expected as South Texas auto dealers lost the last weekend of the month to the storm. Total retail sales for the U.S. dipped by 0.2 percent for the month. The dollar value of retail sales for autos fell by 1.6 percent. We expect to see stronger U.S. auto sales in September as Texas, Louisiana and Florida residents and businesses replace their storm damaged vehicles.

Industrial production dipped by 0.9 percent in August with declines across the three broad industry groups, manufacturing, mining and utilities. We expect to see more drag in manufacturing in September as refineries and petrochemical plants slowly resume normal operations. The lasting power outages in Texas, Louisiana and Florida (due to Harvey and Irma) will likely weigh on utility output in September.

The headline Consumer Price Index for August came in warmer than expected, increasing by 0.4 percent for the month. It was the strongest monthly gain since January. Energy prices provided a push as gasoline was up 6.3 percent for the month.

The Producer Price Index for Final Demand increased by 0.2 percent in August. The PPI for energy goods increased by 3.3 percent in August, reversing three consecutive monthly declines.

Initial claims for unemployment insurance fell by 14,000 for the week ending September 9, to hit 284,000. This comes after a surge in initial UI claims the previous week, gaining 62,000 after Hurricane Harvey hit South Texas. We expect to see another surge in weekly UI claims related to Hurricane Irma over the next couple of weeks.

Mortgage applications jumped for the week ending September 8, with gains in both purchase and refi apps. Purchase apps were up 10.9 percent for the week. Refi apps increased by 8.9 percent. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage fell to 4.03 percent.

The Bank of England hinted that it would raise its benchmark lending rate soon. We expect the European Central Bank to announce the schedule for QE tapering in October.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: Comerica_Economic_Weekly_ 09152017.

 

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 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.

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August Retail Sales, Industrial Production

September 15, 2017 by Daniel Sanabria

Soggy August Data, Some Storm Effects

  • Retail Sales decreased by 0.2 percent in August, weighed down by weak auto sales.
  • Industrial Production decreased by 0.9 percent in August, with drag from Hurricane Harvey.

 

For much of the U.S., August was an uneventful month occupied with back-to-school shopping and end-of-summer vacations. However, for the residents and businesses of South Texas and Southern Louisiana, August ended with a nightmare storm that disrupted everything, including shopping patterns. Retail sales data for the entire U.S. was mostly normal, but auto sales fell more than expected as South Texas auto dealers lost the last weekend of the month to the storm. Total retail sales for the U.S. dipped by 0.2 percent for the month. The dollar value of retail sales for autos fell by 1.6 percent. Unit auto sales dipped from a 16.77 million unit rate in July, to 16.14 in August, a 3.7 percent decline. We expect to see stronger U.S. auto sales in September as Texas, Louisiana and Florida residents and businesses replace their storm damaged vehicles. Building materials sales for August dipped by 0.5 percent. This is another area where we could see a rebound in September due to the clean-up after Harvey and Irma. Gasoline station sales increased by 2.5 percent. The gain in gasoline sales was likely a combination of price effects and pre-storm preparation. We look for strong retail sales of gasoline in September due to higher gasoline prices. The soggy retail sales for August are a damper for Q3 GDP estimates, but there is potential for a rebound in September sales that could counteract the drag from August.

Industrial production dipped by 0.9 percent in August with declines across the three broad industry groups, manufacturing, mining and utilities. The effects of Hurricane Harvey in the industrial production data for August are largely based on estimates by the Federal Reserve. As field data is collected, these estimates will be updated in the coming months. Here is what the Federal Reserve came up with for August industrial production: manufacturing output was down by 0.3 percent as petroleum products and chemicals output fell. We expect to see more drag in manufacturing in September as refineries and petrochemical plants slowly resume normal operations. Utility output was down by 5.5 percent in August, likely weighed down by Hurricane Harvey. In September, the lasting power outages in Texas, Louisiana and Florida (due to Harvey and Irma) will likely weigh on utility output again. Mining output dipped by 0.8 percent in August. Drag on mining output could also roll into September as Gulf Coast oil field workers focus on their homes and families early in the month.

Market Reaction: Equity markets are up. The 10-year Treasury yield is up to 2.20 percent. NYMEX crude oil is up to $49.91/barrel. Natural gas futures are down to $3.07/mmbtu.

For a PDF version of this Comerica Economic Alert click here:  Retail_Sales_09152017.

 

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 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.

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August Consumer Price Index, September UI Claims, Central Banks

September 14, 2017 by Daniel Sanabria

U.S. Consumer Inflation Warms Up, Bank of England Concerned About Inflation

  • The August Consumer Price Index increased by 0.4 percent.
  • Initial Claims for Unemployment Insurance decreased by 14,000 for the week ending September 9.
  • The Bank of England signals interest rate hike soon.

 

The headline Consumer Price Index for August came in warmer than expected, increasing by 0.4 percent for the month. It was the strongest monthly gain since January. Energy prices provided a push as gasoline was up 6.3 percent for the month. The higher energy prices in August do not include the full effect of the refinery shutdowns due to Hurricane Harvey. So, we expect to see another push from energy prices in September. Core CPI (all items less food and energy) increased by 0.2 percent for the month. Rents were also a factor in August, pushing up the shelter component of the CPI, which increased by 0.5 percent in August. Over the 12 months ending in August, headline CPI was up by 1.9 while core CPI was up by 1.7 percent. Looking ahead, we expect to see more price pressure from energy in September. We may also see other hurricane effects in the inflation data due to shortages of building materials and other items. Also, this year’s ongoing easing trend in the value of the dollar is supportive of import price inflation. Today’s warmer than expected consumer price data for August contrasts with the producer price data for the month which was a little cooler than expected. Recent inflation reports will provide fuel for discussion at the upcoming Federal Open Market Committee meeting September 19-20. The FOMC is divided between those who think inflation is weak and therefore would favor lower interest rates for longer, and those who think that the Fed should continue with rate hikes. We will get four sets of data next Wednesday from the Fed that we will use to shape our interest rate expectations for the rest of this year. We will see a new policy announcement, a new set of economic forecasts, a new dot plot and a press conference from Janet Yellen on Wednesday.

Speaking of inflation and interest rates, the Bank of England is now expected to raise its benchmark interest rate within months. A falling pound has helped to stoke inflation in the United Kingdom to well above target levels. With the Bank of England likely raising interest rates there before the end of this year, the U.S. Federal Reserve likely beginning balance sheet reduction before the end of this year, and the European Central Bank likely announcing that it will begin tapering asset purchases by the end of this year, a coordinated global monetary tightening appears to be underway.

Initial claims for unemployment insurance fell by 14,000 for the week ending September 9, to hit 284,000. This comes on the heels of a surge in initial UI claims last week, gaining 62,000 after Hurricane Harvey swamped South Texas. We expect to see another surge in weekly UI claims related to Hurricane Irma over the next couple of weeks. The good news is that the U.S. labor market remains strong, and most of the workers laid off because of the storms will be called back to work relatively quickly.

Market Reaction: Equity markets opened with losses. The 10-Year Treasury bond yield is up to 2.19 percent. NYMEX crude oil is up to $50.24/barrel. Natural gas futures are up to $3.09/MMBtu.

For a PDF version of this Comerica Economic Alert click here: CPI_09142017.

 

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 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.

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August PPI, September Mortgage Apps

September 13, 2017 by Daniel Sanabria

Energy Prices Increased in August Ahead of Harvey

  • The Producer Price Index for Final Demand increased by 0.2 percent in August.
  • Mortgage Applications increased by 9.9 percent for the week ending September 8.

 

Upstream inflation warmed up in August, but not as much as expected as the Producer Price Index for Final Demand increased by 0.2 percent. There was some upward pressure on energy prices in August, ahead of Hurricane Harvey. The PPI for energy goods increased by 3.3 percent in August, reversing three consecutive monthly declines. Core PPI (less food, energy and trade) also increased by 0.2 percent in August. On the goods side, prices also increased for industrial chemicals and for light trucks. Services saw gains in the price index for consumer loans and outpatient care. The PPI for Final Demand is now up 2.4 over the past 12 months.

Inflation data will be highly scrutinized by the Federal Reserve in preparation for the upcoming Federal Open Market Committee meeting on September 19 and 20. Some members of the FOMC have expressed concern about weaker than expected inflation data which, in their view, may not justify further increases in the fed funds rate over the near term. However, that may still be a minority view. We will get some clarity on that next Wednesday after the FOMC meeting. Tomorrow’s Consumer Price Index release for August will likely carry more weight in the Fed’s analysis. A key challenge for the Fed will be to sift through the various inflation reports and to try to make judgements about which price pressures are temporary (often described as transient) and which are more sustaining. This analysis will be complicated over the next few months by distortions due to Hurricanes Harvey and Irma. While crude oil prices decreased in the wake of Hurricane Harvey, refined product prices increased and that will show up in the September price data. Fortunately, ample storage of refined products will allow prices to renormalize quickly this fall. South Texas and Louisiana refineries are already largely back online and ramping up capacity. Key pipelines also reopened quickly. With the double hit from Harvey and Irma, some construction materials make be in short supply this fall, leading to price increases. Also, construction labor may be affected, adding to the rebuilding costs.

Mortgage applications jumped for the week ending September 8, with gains in both purchase and refi apps. Purchase apps were up 10.9 percent for the week, following a 1.4 percent gain the week before. Refi apps increased by 8.9 percent in early September, after increasing by 5.1 percent the prior week. Lower mortgage rates are helping both categories. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage fell to 4.03 percent in early September. We expect to see new and existing home sales increase in most of the U.S. in September. Florida and Texas may be key exceptions to that.

Market Reaction: U.S. equity markets are mixed. The yield on 10-Year Treasury bonds is up to 2.18 percent. NYMEX crude oil is up to $48.82/barrel. Natural gas futures are down to $3.05/mmbtu.

For a PDF version of this Comerica Economic Alert click here: PPI _09132017.

 

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 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.

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August ISM Non-MF Index, Mortgage Apps, July Intl Trade

September 6, 2017 by Robert A. Dye, Ph.D., Daniel Sanabria

August Data Looks Good

• The ISM Non-Manufacturing Index for August increased to 55.3, indicating good conditions.
• The U.S. International Trade Deficit widened to -$43.7 billion in July.
• Mortgage Applications for the week ending September 1 increased with stronger refi activity.

 

The ISM Non-Manufacturing Index for August increased to 55.3, indicating good and improving conditions for the bulk of the U.S. economy. The ISM Manufacturing index for August previously reported strong conditions for the nation’s manufacturing sector. Most non-manufacturing industries reported growth in August, including construction. Only two industries, agriculture/forestry/fishing and transportation/warehousing reported contraction for the month. Anecdotal comments were positive. All ten sub-indexes were above 50, indicating improving conditions. Together, the ISM Non-Manufacturing Index and the ISM Manufacturing Index capture the mood of the U.S. private sector economy and are consistent with a moderate GDP expansion for the third quarter. The data for both August ISM reports was largely collected before Hurricane Harvey flooded South Texas.

The U.S. international trade deficit widened slightly in July to -$43.7 billion. Exports eased by $0.6 billion for the month, due to weaker goods exports. Imports eased by $0.4 billion, with weaker imports of goods. If sustained through August and September, the Q3 trade deficit would narrow compared to Q2 and provide a boost to Q3 GDP growth. However, we may see some drag on exports in September due to the after effects of Hurricane Harvey. This could reduce Q3 GDP slightly. The Port of Houston is a major petroleum and petrochemical export facility.

The Mortgage Banker Association’s composite mortgage application index increased by 3.3 percent for the week ending September 1. Refi apps were strong, up 5.1 percent, as mortgage rates eased. According to the MBA, the rate for a 30-year fixed rate mortgage eased 4.06 percent. Purchase apps increased by 1.4 percent for the week after falling for the three previous weeks.

Market Reaction: U.S. equity markets are mixed. The yield on 10-Year Treasury bonds is up to 2.06 percent. NYMEX crude oil is up to $48.63/barrel. Natural gas futures are down to $2.97/mmbtu.

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 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 obtainedfrom reliable sources or factual information.

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Wealth

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Weekly Market Overview

August 21, 2017 by Peter Sorrentino

Last week saw the risk-off trade localized to the U.S. markets, as traders rolled back assumptions about the administration’s agenda. Despite stabilization in the oil market, the energy sector was again the weakest, falling 2.5%, followed by the consumer discretionary (-1.8%) and industrial (-1%) sectors. The somewhat defensive utilities sector posted the largest advance over the week, picking up 1.2%. The consumer staples managed to finish in the green (+0.2%) last week, thanks largely to the release of Walmart’s strong July quarter results. The bond market continues to attract investors, as last week’s report of lower-than-anticipated inflation in the U.K. further fanned deflation fears. The U.S. ten-year Treasury bond slipped to a 2.194% yield. The coupon area of the curve, the two-year to thirty-year maturities, slipped lower. The differential now stands at 1.47%, versus the 2.65% ten-year average. European markets rebounded last week posting a positive 1.2%, with markets in Asia widely disbursed, from a 1.3% loss for the Nikkei to a 1.9% advance in Shanghai.

The question about investing in emerging markets surfaced again last week in a meeting with customers and colleagues. In this meeting, the statement was made that the question comes down to your view on China (and judging by the nodding heads, many agreed with the comment). I pointed out that this year’s strongest emerging market is not China (+22%); it is Turkey and Latvia, both up 38%. In fact, most of the strongest market returns this year are not in Asia at all, but are to be found in neighboring former communist bloc countries. The Czech Republic, Hungary, Lithuania, Poland and Romania are not often talked about, but the opportunities exist nonetheless. There was a collective sigh of relief amongst investors in the group last week as Argentine voters did not embrace a return by former President, Cristina Fernandez de Kirchner. Shares on the Argentine exchange gained 6% following the results, further boosted another 2% by a rally in the currency.

NOTE: IMPORTANT INFORMATION

The S&P 500® Index, S&P MidCap Index, S&P 600 Index and Dow Jones Wilshire 5000 (collectively, “S&P® Indices”) are products of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and Standard & Poor’s Financial Services, LLC and has been licensed for use by Comerica Bank, on behalf of itself and its Affiliates. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). The trademarks have been licensed to SPDJI and sublicensed for certain purposes by Comerica Bank, on behalf of itself and its Affiliates. Nothing herein is sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”) or Standard & Poor’s Financial Services LLC. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC make any representation or warranty, express or implied, to the owners of the content herein, or any member of the public regarding the advisability of investing in securities generally or in particular strategies or the ability of any particular strategy to track general market performance. SPDJI and Standard & Poor’s Financial Services, LLC only relationship to Comerica Bank, on behalf of itself and its Affiliates with respect to the S&P® Indices is the licensing of the Indices and certain trademarks, service marks, and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P Indices are determined, composed and calculated by S&P Dow Jones Indices or Standard & Poor’s Financial Services, LLC without regard to Comerica Bank and its Affiliates or any of the content herein. S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation to take the needs of Comerica and its Affiliates or the owners of any of the content herein into consideration in determining, composing or calculating the S&P Indices. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Serices, LLC are responsible for and have not participated in the determination of the prices, and amount of any particular strategy or the timing of the issuance or sale of any particular strategy or in the determination or calculation of the equation by which any particular strategy is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation or liability in connection with the administration, marketing or trading of any particular strategy. There is no assurance that any particular investment product based on the S&P Indices will accurately track index performance or provide positive investment returns. SPDJI is not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.

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“Russell 2000® Index” is a trademark of Russell Investments, licensed for use by Comerica Bank and World Asset Management, Inc. The source of all returns is Russell Investments. Further redistribution of information is strictly prohibited.

MSCI EAFE® is a trade mark of Morgan Stanley Capital International, Inc. (“MSCI”).

Source: All statistics herein obtained from Bloomberg.

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Weekly Market Overview June 5, 2017

June 5, 2017 by Peter Sorrentino

One of today’s most pressing investment questions is the valuation level of the U.S. equity market. To understand the nature of the question, we review the relative valuation of competing asset classes, in particular, those that are comparable in terms of overall characteristics. In the table on page 2, we contrast other classes of equities against the dominant domestic benchmark, the Standard & Poor’s 500® Index. The point of this process is to identify more favorable risk versus potential return environments. As you can see from the two charts on the left, the domestic equity market, medium and small capitalization, has been remarkably homogeneous. This is particularly true since 2009, and an anomaly from a historical perspective. It really speaks more to the devastation of the financial crisis. So, there does not appear to be a broadly neglected and, thus, undervalued segment within the domestic equity sphere. But looking at the charts on the right, a very different situation becomes clear. Relative to the U.S. market,both the emerging and, in particular, the developed international markets have, until this year, underperformed.While the year-to-date performance of both the EAFE® and EM has been strong, they have considerable ground to cover to match the returns posted by U.S. stocks during the last decade.

I have repeatedly written about the level of complacency pervading the domestic market, so much so that the opportunities elsewhere may be overlooked. At the close of the recent earnings reporting season, the forecast for revenue growth of the S&P 500® Index was lifted to 7%, while the outlook for the EAFE® constituents was raised to 8% and 11%-12% for the EM. International investing does entail additional risks, such as currency fluctuations, liquidity and, of course, political. It is critical to be mindful of these challenges and have a time horizon sufficient toweather the increased volatility. At this time, two facts can be agreed upon: valuations ex-U.S. are lower and growth expectations are higher. The goal of investing is to be adequately compensated for the risk taken, and a lost opportunity is a risk as well.

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Weekly Market Overview March 6th, 2017

March 9, 2017 by Peter Sorrentino, Chief Investment Officer, Comerica Asset Management

The world continues to anticipate the priorities of the new administration. Investors have been quick to seize upon each executive order as though future economic results are all but guaranteed. To quote Warren Buffet, “Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.” To that end, a quick review of the announcements thus far this earnings season should be somewhat sobering. With the exception of the extractive industries and other commodity-related sectors, we have seen a disconcerting number of earnings and, even worse, revenue misses. Drowned out by the rush to join the parade of domestic job creators are the announcements of store closings and job cuts in the retail space. The recent holiday season was not a tide lifting all boats. As Comerica’s Chief Economist, Robert Dye, points out, we will see unit labor cost rising this year due to minimum wage hikes, implementation of new overtime rules and the spike in health care costs for this year. Even the robust auto sales data masked some early warning signs as its composition reveals that the light truck sector drove unit sales. With fuel prices higher year-over-year, that is a performance that may prove tough to match.

Aside from the economic realities, we should also consider the market mechanics of what has been going on since Election Day. The prospect of interest rates mounting a sustained advance has led to a large scale portfolio rebalancing with investors moving from long duration fixed assets to shorter duration equities. Here it is critical to consider the relative scale. The $3 trillion in bonds sold between November 9th and the end of the year created only a modest ripple in the bond market, but the same cannot be said of what that amount did to stock prices. There was a term coined during the last rotation from large cap to small cap stocks – “buckets-into-thimbles.” Going from bonds to stocks is creating the same distortions. There are some crowded trades lingering, and this is where we need to be proactive. We should be unwinding any stretch for yield, regardless of asset class. With the rebound in commodity prices in the face of global overcapacity, it is important to address the size and composition of the alternative holdings. Perhaps one of the most difficult challenges will be addressing the exposure to emerging markets. There is evidence that many of these economies have begun the migration from export orientation to domestic consumption, with projected GDP growth in some cases double that of the developed economies. These markets are under-owned and have upside surprise potential that warrants consideration.

We are in an enviable position; the long post crisis advance has been stable and fairly uniform. It is early in a new tax year, enabling us to reposition portfolios to reduce downside risk and enhance prospective returns. Accounts with funds to invest domestically should look to small and mid-cap equities with a bias towards value and growth at a reasonable price (GARP). Accounts for which global exposure is appropriate should look first to emerging markets.

Note: Important Information

This is not a complete analysis of every material fact regarding any company, industry or security. The information and materials herein has been obtained from sources we consider to be reliable but Comerica Wealth Management does not warrant, or guarantee, its completeness or accuracy. Materials prepared by Comerica Wealth Management personnel are based on public information. Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of Comerica Wealth Management, including investment banking personnel.

The views expressed are those of the author at the time of writing and are subject to change without notice. We do not assume any liability for losses that may result from the reliance by any person upon any such information or opinions. This material has been distributed for general educational/informational purposes only, and should not be considered as investment advice or a recommendation for any particular security, strategy or investment product, or as personalized investment advice.

Past performance is not indicative of future results. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The investments and strategies discussed herein may not be suitable for all clients. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations.

Comerica Wealth Management consists of various divisions and affiliates of Comerica Bank, including Comerica Bank & Trust, National Association; World Asset Management, Inc.; Comerica Securities, Inc.; and Comerica Insurance Services, Inc. and its affiliated insurance agencies. World Asset Management, Inc. and Comerica Securities, Inc. are federally registered investment advisors. Registrations do not imply a certain level of skill or training. Comerica Bank and its affiliates do not provide tax or legal advice. Please consult with your tax and legal advisors regarding your specific situation.

Securities and other non-deposit investment products offered through Comerica are not insured by the FDIC; are not deposits or other obligations of, or guaranteed by, Comerica Bank or any of its affiliates; and are subject to investment risks, including possible loss of the principal invested.

Past performance is not indicative of future results. Information presented is for general information only and is subject to change.

 

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Comerica Economic Weekly

September 15, 2017 by Daniel Sanabria

We are starting to see the effects of Hurricanes Harvey and Irma show up in some of the U.S. data. However, many of the storm effects are estimated by the data agencies involved. As field data is collected, these estimates will be revised in the coming months.

Retail sales data was mostly normal, but auto sales fell more than expected as South Texas auto dealers lost the last weekend of the month to the storm. Total retail sales for the U.S. dipped by 0.2 percent for the month. The dollar value of retail sales for autos fell by 1.6 percent. We expect to see stronger U.S. auto sales in September as Texas, Louisiana and Florida residents and businesses replace their storm damaged vehicles.

Industrial production dipped by 0.9 percent in August with declines across the three broad industry groups, manufacturing, mining and utilities. We expect to see more drag in manufacturing in September as refineries and petrochemical plants slowly resume normal operations. The lasting power outages in Texas, Louisiana and Florida (due to Harvey and Irma) will likely weigh on utility output in September.

The headline Consumer Price Index for August came in warmer than expected, increasing by 0.4 percent for the month. It was the strongest monthly gain since January. Energy prices provided a push as gasoline was up 6.3 percent for the month.

The Producer Price Index for Final Demand increased by 0.2 percent in August. The PPI for energy goods increased by 3.3 percent in August, reversing three consecutive monthly declines.

Initial claims for unemployment insurance fell by 14,000 for the week ending September 9, to hit 284,000. This comes after a surge in initial UI claims the previous week, gaining 62,000 after Hurricane Harvey hit South Texas. We expect to see another surge in weekly UI claims related to Hurricane Irma over the next couple of weeks.

Mortgage applications jumped for the week ending September 8, with gains in both purchase and refi apps. Purchase apps were up 10.9 percent for the week. Refi apps increased by 8.9 percent. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage fell to 4.03 percent.

The Bank of England hinted that it would raise its benchmark lending rate soon. We expect the European Central Bank to announce the schedule for QE tapering in October.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: Comerica_Economic_Weekly_ 09152017.

 

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 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.

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August Retail Sales, Industrial Production

September 15, 2017 by Daniel Sanabria

Soggy August Data, Some Storm Effects

  • Retail Sales decreased by 0.2 percent in August, weighed down by weak auto sales.
  • Industrial Production decreased by 0.9 percent in August, with drag from Hurricane Harvey.

 

For much of the U.S., August was an uneventful month occupied with back-to-school shopping and end-of-summer vacations. However, for the residents and businesses of South Texas and Southern Louisiana, August ended with a nightmare storm that disrupted everything, including shopping patterns. Retail sales data for the entire U.S. was mostly normal, but auto sales fell more than expected as South Texas auto dealers lost the last weekend of the month to the storm. Total retail sales for the U.S. dipped by 0.2 percent for the month. The dollar value of retail sales for autos fell by 1.6 percent. Unit auto sales dipped from a 16.77 million unit rate in July, to 16.14 in August, a 3.7 percent decline. We expect to see stronger U.S. auto sales in September as Texas, Louisiana and Florida residents and businesses replace their storm damaged vehicles. Building materials sales for August dipped by 0.5 percent. This is another area where we could see a rebound in September due to the clean-up after Harvey and Irma. Gasoline station sales increased by 2.5 percent. The gain in gasoline sales was likely a combination of price effects and pre-storm preparation. We look for strong retail sales of gasoline in September due to higher gasoline prices. The soggy retail sales for August are a damper for Q3 GDP estimates, but there is potential for a rebound in September sales that could counteract the drag from August.

Industrial production dipped by 0.9 percent in August with declines across the three broad industry groups, manufacturing, mining and utilities. The effects of Hurricane Harvey in the industrial production data for August are largely based on estimates by the Federal Reserve. As field data is collected, these estimates will be updated in the coming months. Here is what the Federal Reserve came up with for August industrial production: manufacturing output was down by 0.3 percent as petroleum products and chemicals output fell. We expect to see more drag in manufacturing in September as refineries and petrochemical plants slowly resume normal operations. Utility output was down by 5.5 percent in August, likely weighed down by Hurricane Harvey. In September, the lasting power outages in Texas, Louisiana and Florida (due to Harvey and Irma) will likely weigh on utility output again. Mining output dipped by 0.8 percent in August. Drag on mining output could also roll into September as Gulf Coast oil field workers focus on their homes and families early in the month.

Market Reaction: Equity markets are up. The 10-year Treasury yield is up to 2.20 percent. NYMEX crude oil is up to $49.91/barrel. Natural gas futures are down to $3.07/mmbtu.

For a PDF version of this Comerica Economic Alert click here:  Retail_Sales_09152017.

 

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 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.

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August Consumer Price Index, September UI Claims, Central Banks

September 14, 2017 by Daniel Sanabria

U.S. Consumer Inflation Warms Up, Bank of England Concerned About Inflation

  • The August Consumer Price Index increased by 0.4 percent.
  • Initial Claims for Unemployment Insurance decreased by 14,000 for the week ending September 9.
  • The Bank of England signals interest rate hike soon.

 

The headline Consumer Price Index for August came in warmer than expected, increasing by 0.4 percent for the month. It was the strongest monthly gain since January. Energy prices provided a push as gasoline was up 6.3 percent for the month. The higher energy prices in August do not include the full effect of the refinery shutdowns due to Hurricane Harvey. So, we expect to see another push from energy prices in September. Core CPI (all items less food and energy) increased by 0.2 percent for the month. Rents were also a factor in August, pushing up the shelter component of the CPI, which increased by 0.5 percent in August. Over the 12 months ending in August, headline CPI was up by 1.9 while core CPI was up by 1.7 percent. Looking ahead, we expect to see more price pressure from energy in September. We may also see other hurricane effects in the inflation data due to shortages of building materials and other items. Also, this year’s ongoing easing trend in the value of the dollar is supportive of import price inflation. Today’s warmer than expected consumer price data for August contrasts with the producer price data for the month which was a little cooler than expected. Recent inflation reports will provide fuel for discussion at the upcoming Federal Open Market Committee meeting September 19-20. The FOMC is divided between those who think inflation is weak and therefore would favor lower interest rates for longer, and those who think that the Fed should continue with rate hikes. We will get four sets of data next Wednesday from the Fed that we will use to shape our interest rate expectations for the rest of this year. We will see a new policy announcement, a new set of economic forecasts, a new dot plot and a press conference from Janet Yellen on Wednesday.

Speaking of inflation and interest rates, the Bank of England is now expected to raise its benchmark interest rate within months. A falling pound has helped to stoke inflation in the United Kingdom to well above target levels. With the Bank of England likely raising interest rates there before the end of this year, the U.S. Federal Reserve likely beginning balance sheet reduction before the end of this year, and the European Central Bank likely announcing that it will begin tapering asset purchases by the end of this year, a coordinated global monetary tightening appears to be underway.

Initial claims for unemployment insurance fell by 14,000 for the week ending September 9, to hit 284,000. This comes on the heels of a surge in initial UI claims last week, gaining 62,000 after Hurricane Harvey swamped South Texas. We expect to see another surge in weekly UI claims related to Hurricane Irma over the next couple of weeks. The good news is that the U.S. labor market remains strong, and most of the workers laid off because of the storms will be called back to work relatively quickly.

Market Reaction: Equity markets opened with losses. The 10-Year Treasury bond yield is up to 2.19 percent. NYMEX crude oil is up to $50.24/barrel. Natural gas futures are up to $3.09/MMBtu.

For a PDF version of this Comerica Economic Alert click here: CPI_09142017.

 

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 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.

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August PPI, September Mortgage Apps

September 13, 2017 by Daniel Sanabria

Energy Prices Increased in August Ahead of Harvey

  • The Producer Price Index for Final Demand increased by 0.2 percent in August.
  • Mortgage Applications increased by 9.9 percent for the week ending September 8.

 

Upstream inflation warmed up in August, but not as much as expected as the Producer Price Index for Final Demand increased by 0.2 percent. There was some upward pressure on energy prices in August, ahead of Hurricane Harvey. The PPI for energy goods increased by 3.3 percent in August, reversing three consecutive monthly declines. Core PPI (less food, energy and trade) also increased by 0.2 percent in August. On the goods side, prices also increased for industrial chemicals and for light trucks. Services saw gains in the price index for consumer loans and outpatient care. The PPI for Final Demand is now up 2.4 over the past 12 months.

Inflation data will be highly scrutinized by the Federal Reserve in preparation for the upcoming Federal Open Market Committee meeting on September 19 and 20. Some members of the FOMC have expressed concern about weaker than expected inflation data which, in their view, may not justify further increases in the fed funds rate over the near term. However, that may still be a minority view. We will get some clarity on that next Wednesday after the FOMC meeting. Tomorrow’s Consumer Price Index release for August will likely carry more weight in the Fed’s analysis. A key challenge for the Fed will be to sift through the various inflation reports and to try to make judgements about which price pressures are temporary (often described as transient) and which are more sustaining. This analysis will be complicated over the next few months by distortions due to Hurricanes Harvey and Irma. While crude oil prices decreased in the wake of Hurricane Harvey, refined product prices increased and that will show up in the September price data. Fortunately, ample storage of refined products will allow prices to renormalize quickly this fall. South Texas and Louisiana refineries are already largely back online and ramping up capacity. Key pipelines also reopened quickly. With the double hit from Harvey and Irma, some construction materials make be in short supply this fall, leading to price increases. Also, construction labor may be affected, adding to the rebuilding costs.

Mortgage applications jumped for the week ending September 8, with gains in both purchase and refi apps. Purchase apps were up 10.9 percent for the week, following a 1.4 percent gain the week before. Refi apps increased by 8.9 percent in early September, after increasing by 5.1 percent the prior week. Lower mortgage rates are helping both categories. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage fell to 4.03 percent in early September. We expect to see new and existing home sales increase in most of the U.S. in September. Florida and Texas may be key exceptions to that.

Market Reaction: U.S. equity markets are mixed. The yield on 10-Year Treasury bonds is up to 2.18 percent. NYMEX crude oil is up to $48.82/barrel. Natural gas futures are down to $3.05/mmbtu.

For a PDF version of this Comerica Economic Alert click here: PPI _09132017.

 

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 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.

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August ISM Non-MF Index, Mortgage Apps, July Intl Trade

September 6, 2017 by Robert A. Dye, Ph.D., Daniel Sanabria

August Data Looks Good

• The ISM Non-Manufacturing Index for August increased to 55.3, indicating good conditions.
• The U.S. International Trade Deficit widened to -$43.7 billion in July.
• Mortgage Applications for the week ending September 1 increased with stronger refi activity.

 

The ISM Non-Manufacturing Index for August increased to 55.3, indicating good and improving conditions for the bulk of the U.S. economy. The ISM Manufacturing index for August previously reported strong conditions for the nation’s manufacturing sector. Most non-manufacturing industries reported growth in August, including construction. Only two industries, agriculture/forestry/fishing and transportation/warehousing reported contraction for the month. Anecdotal comments were positive. All ten sub-indexes were above 50, indicating improving conditions. Together, the ISM Non-Manufacturing Index and the ISM Manufacturing Index capture the mood of the U.S. private sector economy and are consistent with a moderate GDP expansion for the third quarter. The data for both August ISM reports was largely collected before Hurricane Harvey flooded South Texas.

The U.S. international trade deficit widened slightly in July to -$43.7 billion. Exports eased by $0.6 billion for the month, due to weaker goods exports. Imports eased by $0.4 billion, with weaker imports of goods. If sustained through August and September, the Q3 trade deficit would narrow compared to Q2 and provide a boost to Q3 GDP growth. However, we may see some drag on exports in September due to the after effects of Hurricane Harvey. This could reduce Q3 GDP slightly. The Port of Houston is a major petroleum and petrochemical export facility.

The Mortgage Banker Association’s composite mortgage application index increased by 3.3 percent for the week ending September 1. Refi apps were strong, up 5.1 percent, as mortgage rates eased. According to the MBA, the rate for a 30-year fixed rate mortgage eased 4.06 percent. Purchase apps increased by 1.4 percent for the week after falling for the three previous weeks.

Market Reaction: U.S. equity markets are mixed. The yield on 10-Year Treasury bonds is up to 2.06 percent. NYMEX crude oil is up to $48.63/barrel. Natural gas futures are down to $2.97/mmbtu.

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 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 obtainedfrom reliable sources or factual information.

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