Comerica Economic Weekly

We attended the semi-annual meeting of the Economic Advisory Council of the American Bankers Association this week in Washington DC. This is a meeting of chief economists of major U.S. banks and financial institutions. The consensus expectation of this group was for ongoing moderate economic growth this year and next, with some boost from fiscal stimulus. The group expects that fiscal stimulus will come primarily in the form of tax reform early next year, but it will also include some net gain in government spending on infrastructure.

The EAC expects that the Federal Reserve will announce the beginning of its balance sheet reduction program in September, and will wait until December for the third and final fed funds rate increase this year. The group expects to see between two and four 25-basis-point fed funds rate increases in 2018, with some downside risk coming from lower-than-expected inflation.

The Conference Board’s Leading Economic Index increased by 0.3 percent in May, consistent with expectations for ongoing moderate GDP growth this year. Eight out of ten components of the LEI were positive, including the interest rate spread, the ISM new orders index, and consumer expectations for business conditions. Average weekly manufacturing hours were unchanged for the month. Residential building permits declined. The Coincident Economic index gained only 0.1 percent in May, consistent with easing expectations for growth in Q2. The Lagging Index also gained 0.1 percent.

Initial claims for unemployment insurance gained an inconsequential 3,000, to finish at 241,000 for the week ending June 17. Continuing claims increased by 8,000 to hit a still very low 1,944,000 for the week ending June 10.

Mortgage applications for purchase were strong in early May and then eased in the second half of the month. The data show a big jump in early June.

Existing home sales for May increased by 1.1 percent after falling in April. Existing home sales hit a 5,620,000 unit annual rate, near the long-term average. The series has been range bound since last November, showing no consistent upward momentum. The inventory of existing homes for sales inched up to a still-tight 4.2 months’ worth. Tight inventories will support ongoing price gains. The median sales price of an existing home was up by 5.8 percent over the previous 12 months.

New home sales for May also increased, gaining 2.9 percent for the month and hitting a 610,000 annual sale rate. New home sales are showing a little more upward momentum than existing home sales, but the May sales rate was still below the recent peak in February. The supply of new homes for sale remained at 5.3 months’ worth. Gains in median sales prices were looking softer this spring, but the May data shows a strong 16.8 percent increase in the median sales price of a new single-family home over the previous 12 months. This does not account for changes in the size of new homes being built.

The next meeting of the Federal Reserve’s Federal Open Market Committee is scheduled for July 25/26. We do not expect to see an interest rate hike announced at the upcoming meeting. According to the fed funds futures market, the implied probability of a July 26 rate hike is only 2.5 percent. We do expect the Fed to provide more guidance on the timing of balance sheet reduction in July. We expect the next rate hike to come in December.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here:  Comerica_Economic_Weekly_ 06232017.

 

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Comerica Economic Weekly

We saw several important data releases this week and significant action and non-action by central banks. U.S. economic data for the week was generally softer than expected. However, data are still supportive of an increase in GDP growth in the second quarter.

Housing starts for May fell by 5.5 percent to a 1,092,000 unit annual rate. This is the weakest month since last September and the third consecutive monthly decline. It is also well below the rate of household formation indicating that ongoing tight supply conditions are likely in most residential real estate markets. Both single and multifamily starts fell in May. Permits fell by 4.9 percent in May, to a 1,168,000 unit annual rate. The bulk of the losses were in multifamily permits.

Even though residential construction numbers have been soft, builder confidence remains high. The National Association of Homebuilders’ Housing Market Index eased to a still-high 67 in early June. According to the NAHB, builders continue to express frustration about the shortage of skilled labor and buildable lots.

Industrial production for May was unchanged after surging by 1.1 percent in April. The May stall came as manufacturing output decreased by 0.4 percent, while utilities gained 0.4 percent and mining output increased by 1.6 percent. Vehicle assemblies eased from an 11.77 million unit annual rate in April to 11.54 in May.

With gasoline prices lower in May, the headline Consumer Price Index dipped by 0.1 percent. The energy price index was down by 2.7 percent. Excluding food and energy, core CPI increased by 0.1 percent. Over the previous 12 months, the headline CPI was up by 1.9 percent, while core CPI was up by 1.7 percent.

The Producer Price Index for final demand was unchanged in May. Over the previous 12 months, the PPI for final demand increased by 2.4 percent, and core PPI was up 2.1 percent.

The price of West Texas Intermediate crude oil dropped at the end of the week to below $45/barrel as inventories of crude oil and refined products remain high. This could set up weak inflation numbers for June.

Retail sales for May eased by 0.3 percent, in part due to lower gasoline prices. Service station sales were off by 2.4 percent for the month. Despite the soft nominal retail numbers for May, real (inflation adjusted) consumer spending in the second quarter looks like it is bouncing back after a weak first quarter, supportive of GDP growth.

Despite the soft data for May, small business optimism remains high. The National Federation of Independent Business said that their small business optimism index remained at a strong 104.5 in May.

The Federal Reserve raised the fed funds rate range to 1.00-to-1.25 percent on Wednesday. The Bank of England kept their key interest rate unchanged, as did the European Central Bank and the Bank of Japan. The dollar strengthened against a broad basket of currencies yesterday.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here:  Comerica_Economic_Weekly_ 06162017.

 

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May Industrial Production, June UI Claims, Regional Manufacturing, Builders

Production Stalls after April Surge

  • Industrial Production was unchanged in May as vehicle assemblies declined.
  • Initial Claims for Unemployment Insurance dipped by 8,000 for the week ending June 10, to hit 237,000.

Industrial production for May was unchanged after surging by 1.1 percent in April. The May stall came as manufacturing output decreased by 0.4 percent, while utilities gained 0.4 percent and mining output increased by 1.6 percent. Manufacturing output was weakest among durable goods industries, weighed down by a 2.0 percent dip in motor vehicles and parts production. Vehicle assemblies eased from an 11.77 million unit annual rate in April to 11.54 in May. We expect auto production in the second half of this year to remain below the strong 12.18 million unit rate for 2016 as vehicle sales ease this year. We forecast sales for 2017 coming in at about 16.9 million units. Output in the mining sector has increased this year, following the drilling rig count upward. It looks like the global oil market is set to enter the second half of the year still oversupplied, keeping prices weaker than expected. So far, the rate of increase in the drilling rig count looks steady. But that will not continue forever and so the gain in mining output also has an upper limit. That limit will be determined by the ability of U.S. drillers to remain profitable with an extended period of low prices, and by the reaction of OPEC members to an extended period of low prices.

Labor market indicators continue to show tight conditions that are normally consistent with gains in wages and salaries. To date we have only seen moderate gains in earnings. But that story could change as companies work harder to find and retain employees. Initial claims for unemployment insurance decreased by 8,000 for the week ending June 10, to hit 237,000. This is a very low level and is about where we have been all year. Continuing claims gained 6,000 for the week ending June 3, to hit 1.935,000, also a very low level.

Regional manufacturing conditions look good in the Northeast. The Federal Reserve Bank of Philadelphia’s manufacturing survey showed strong and improving current conditions for June, as did the New York Fed’s manufacturing survey.

The National Association of Homebuilders’ Housing Market Index fell to 67 in early June from 69 in May. Builder confidence remains high. According to the NAHB, builders continue to express frustration about the shortage of skilled labor and buildable lots.

Market Reaction: Equity markets opened with losses. The yield on 10-Year Treasury bonds is up to 2.16 percent. NYMEX crude oil is down to $44.50/barrel. Natural gas futures are up to $3.03/mmbtu.

For a PDF version of this Comerica Economic Alert click here:  Industrial Production 06-15-17.

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Federal Reserve Monetary Policy

 Fed Raises Short-Term Interest Rates 25 Basis Points As Expected

  • The Federal Reserve raised the target range of the fed funds rate by 25 basis points.
  • The new Dot Plot remains consistent with three 25 basis point rate hikes in 2017 and 2018.

As widely expected, the Federal Open Market Committee voted today to increase the fed funds rate range by 25 basis points, to 1.00-to-1.25 percent. The economic commentary in the monetary policy announcement was slightly more positive than the May 3 statement. A key economic issue for the Fed is recently moderating inflation, which may call into question the Fed’s plans for further interest rate increases. However, in the material issued today by the Fed, we see an FOMC moving ahead, not yet ready to back off plans for one more rate hike this year, and three more next year. There was one dissenting vote from today’s policy action. That was from Neel Kashkari, President of the Federal Reserve Bank of Minneapolis. Today’s policy announcement was accompanied by a new set of economic projections, a new “dot plot” and an addendum to the Fed’s previously published Policy Normalization Principles and Plans, which provides some added detail about balance sheet reduction.

In their new economic projections, FOMC member’s median projections of real GDP growth for 2017, 2018 and 2019 were little changed from the projections of March 15, at around 2 percent per year. The unemployment rate projections were lower, dipping to 4.2 percent in 2018, reflecting the faster-than-expected drop in the unemployment rate this year. Long run inflation projections were unchanged at near 2 percent. This is an important point because it shows that the FOMC currently sees justification for more rate hikes even though inflation indicators have recently been weak. The median expected year-end fed funds rates for 2017, 2018 and 2019 were essentially unchanged from March 15.

Likewise, the new dot plot is little changed from March. It remains consistent with one more 25 basis point rate hike this year and three 25 basis point rate hikes in 2018. Expectations for the long-run fed funds rate remain centered around 3 percent.

The addendum to the Fed’s policy normalization principles gives us a little deeper view into balance sheet reduction. Once the program gets started, the Fed will continue to reinvest maturing assets only to the extent that the dollar total exceeds gradually rising caps. So the cap represents the amount of asset reduction per month. The Fed expects to start the cap on the reinvestment of maturing Treasury bonds at $6 billion per month and increase that in steps of $6 billion per quarter over 12 months until it reaches a final cap of $30 billion per month. The cap on the reinvestment of agency debt and mortgage-backed securities will start at $4 billion per month and increase in steps of $4 billion quarterly over 12 months until it reaches $20 billion per month.

In her post-policy-announcement press conference, FOMC chairwoman Janet Yellen said that the Fed had not yet determined the final size of the balance sheet, but that it would be larger than the roughly $1 trillion size that it was prior to the financial crisis. She also declined to say how long it would take to get there. She described the balance sheet reduction plan as working in the background while fed funds interest rate policy would remain the primary mechanism for monetary policy changes. Yellen would not say specifically when balance sheet reduction will start, but she reinforced previous Fed statements suggesting that it will start before the end of this year. She made her most forceful comment yet on the starting point for balance sheet reduction saying that it would happen “relatively soon.”

Market Reaction: Equity prices dipped at the start of Yellen’s press conference and then recovered. The 10-year Treasury yield increased after 2 pm eastern time to about 2.14 percent. NYMEX crude oil fell earlier today to $44.75/barrel. Natural gas futures eased to $2.94/mmbtu.

For a PDF version of this Comerica Economic Alert click here:  FOMC_06142017.

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May Retail Sales, Consumer Price Index, Producer Price Index

Soft Pricing Contributes to Soft Spending in May

  • May Retail Sales decreased by 0.3 percent, as gasoline prices fell.
  • The Consumer Price Index fell by 0.1 percent in May, as the energy price index declined by 2.7 percent.
  • The Producer Price Index for final demand was unchanged in May.

Retail sales for May eased by 0.3 percent, in part due to lower gasoline prices. Service station sales were off by 2.4 percent for the month. Other categories were weak as well. Electronics and appliance store sales were down by 2.8 percent. General merchandise stores gave up 0.3 percent. Unit auto sales dropped from a 16.9 million unit annual rate in April to 16.7 in May. The dollar value of retail sales for autos was down by 0.2 percent for the month. Excluding autos, retail sales were also down by 0.3 percent. Despite the soft retail numbers for May, real (inflation adjusted) consumer spending in the second quarter looks like it is bouncing back after a weak first quarter and this will support stronger GDP growth. We will see the first estimate of Q2 GDP at the end of July.

With gasoline prices lower in May, the headline Consumer Price Index dipped by 0.1 percent. The energy price index was down by 2.7 percent. Excluding food and energy, core CPI increased by 0.1 percent. Both new and used motor vehicle prices were down by 0.2 percent for the month. Over the previous 12 months, the headline CPI was up by 1.9 percent, while core CPI was up by 1.7 percent. The 12-month change in the CPI has dropped steadily since peaking at 2.7 percent last February.

The Producer Price Index for final demand was unchanged in May. The energy price index for final demand goods was down by 3.0 percent, reflecting lower refinery product prices. Food prices were down by 0.2 percent. There was more pricing pressure on the services side where the PPI for final demand services gained 0.3 percent in May. The core PPI for final demand (less food, energy and trade) dipped by 0.1 percent in May. Over the previous 12 months, the PPI for final demand grew by 2.4 percent, and core PPI was up 2.1 percent. If energy prices stay tame, the year-ago comparisons for the headline PPI series are near or past their peak.

With less push from energy prices, inflation measures are tame. This could have an impact on Federal Reserve monetary policy as policy makers start to question their expectations about future interest rates given lower inflation. We still expect the Fed to raise the fed funds rate this afternoon. They will also release a new set of economic forecasts and a new “dot plot” that may show a slightly shallower uphill path for interest rates in 2018.

Market Reaction: Equity markets were mixed at the open. The 10-year Treasury yield is down to 2.11 percent. NYMEX crude oil is down to $46.09/barrel. Natural gas futures are up to $2.98/mmbtu.

For a PDF version of this Comerica Economic Alert click here:  Retail_Sales_06142017.

 

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An Important Summer is Shaping Up in Washington

They say “Sell in May, and go away.” However, if you do that this year you are likely to miss a lot. The upcoming June 13/14 Federal Open Market Committee meeting is shaping up to be eventful. Also, the Trump Administration is sharpening its pencils and getting to work on tax reform. National Economic Council Director Gary Cohn expects to deliver a detailed plan to Congress by the end of summer. We also look forward to seeing more details of the President’s infrastructure plan in the coming months.

Despite the clunker of a jobs report for May, we expect the Federal Reserve to raise the fed funds rate range by 25 basis points for the second time this year on June 14. Most recent U.S. and global economic data have been positive, and the weaker-than-expected 138,000 jobs increase in May looks like a fluky number. As of June 6, the fed funds futures market views a June 14 rate hike as nearly a sure thing, with an implied probability of 96 percent. In addition to a rate hike on June 14, we expect to learn more about the FOMC’s thinking about future rate hikes, both for the remainder of 2017, and also for 2018. This could come in the form of forward guidance in the monetary policy announcement on June 14, added details from Janet Yellen’s post-FOMC meeting press conference, and from the updated “dot plot.”

In the near term, we expect the Fed to raise the fed funds rate one more time this year after June 14, for a total of three, 25 basis point rate hikes in 2017. The two leading candidates for the dates of the third rate hike this year are September 20 and December 13, which coincide with scheduled press conferences by the FOMC chairwoman Janet Yellen. There is an FOMC meeting over October 31/November 1, but that meeting does not coincide with a press conference. Given the need for the Fed to communicate clearly about interest rate policy and balance sheet reduction, the odds of a significant move coming from the Fed on November 1 appear to be low.

The timing of the third rate hike in 2017 will be coordinated with the Fed’s plans for balance sheet reduction. The Fed will likely take a pause from interest rate hikes to begin balance sheet reduction, which is expected to be equivalent to a marginal tightening of monetary policy. We look for the Fed to provide some more information about balance sheet reduction on June 14. So far, they have said that they would like to start reducing the pace of reinvestment of maturing assets this year (this will begin to reduce the size of the Fed’s balance sheet). They would also like to gradually ramp up caps on reinvestments until they reach their targets, and hold the caps constant until they reach the desired size of their balance sheet. We still need to know the start date of the reinvestment caps, the scale of the caps, the mechanisms of asset roll-off and the desired final size of the Fed’s balance sheet. Right now, we are expecting to see about a $1.5 to $2 trillion reduction in assets by the Fed, to occur over about a five-year period. We need further insight into the mechanisms for Treasury bond roll-off and for mortgage-backed-security roll-off in order to understand how new Fed policy will impact financial markets and bank financial flows by the end of this year.

The Trump Administration may begin to fill some of the vacant seats on the Board of Governors this summer. Janet Yellen appears to be heading toward retirement next February. Her replacement may be vetted this fall.

For a PDF version of the complete Comerica U.S. Monthly with additional commentary, tables, and charts, click here:  US_Economic_Outlook_0617.

 

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Comerica Economic Weekly

U.S. data releases this week were capped by a weaker-then-expected payroll employment gain in May, according to the BLS. However, other labor market indicators were solid.

May payrolls expanded by 138,000 according to the BLS. The pace of U.S. job growth appears to be easing, and this is what we have been expecting to see as the economic expansion matures. Despite weaker-than-expected payroll job growth for May, the unemployment rate fell to 4.3 percent. This was due to a combination of fluky inputs to the unemployment rate calculation. Average hourly earnings were up by 0.2 percent in May and by 2.5 percent over the previous 12 months. The average workweek was unchanged at 34.4 hours.

In contrast to the BLS employment report, the ADP employment report for May showed a strong gain of 253,000 private sector jobs for the month.

Also, unemployment insurance claims remain at very low levels. Initial claims for the week ending May 27 increased by 13,000, to hit 248,000. Continuing claims for the week ending May 20 fell by 9,000, to hit 1,915,000.

Nominal personal income increased by 0.4 percent in April, about as expected. After adjusting for inflation and taxes, real disposable income increased by a moderate 0.2 percent for the month. Nominal consumer spending increased by 0.4 percent in April, supported by higher energy prices and a modest increase in auto sales for April. After adjusting for inflation, real consumer spending increased by 0.2 percent for the month, and is consistent with a near-3 percent annualized rate of growth for Q2 real consumer spending.

According to the Case-Shiller U.S. National Home Price Index, U.S. home prices were up by 0.3 percent in March over February, after seasonal adjustment, and were up 5.8 percent over the previous 12 months. Eighteen of the 20 cities in the Case-Shiller 20-City Index showed monthly house price gains in March.

The Conference Board’s Consumer Confidence Index eased from a high 119.4 in April, to a still high 117.9 in May.

Vehicle sales for May dipped from a 16.9 million unit sales rate in April to 16.7, still a good sales pace. We expect vehicle sales to gradually ease off the record setting pace of last year. On the one hand, good income growth and house price appreciation, combined with strong consumer confidence will continue to support sales this year. On the other hand, fleet sales to rental agencies are expected to ease and sub-prime credit conditions could tighten.

Manufacturing conditions nationwide remain positive and improving. The Institute of Supply Management’s Non-Manufacturing Index inched up from 54.8 in April to 54.9 in May. The new orders, production and employment sub-indexes were all in positive territory.

According to the Federal Reserve Bank of Dallas, Texas manufacturing conditions are improving at a fast pace. This is consistent with the climbing rig count.

The U.S. international trade gap widened in June by $2.3 billion, to -$47.6 billion. Exports eased slightly while imports increased. The April inflation-adjusted trade gap in goods is a little wider than the Q1 average, so early in Q2 trade is shaping up to be a modest drag on GDP growth for the quarter.

Construction spending in April dipped by 1.4 percent, consistent with the decline in housing starts for the month. Spending on private residential construction eased by 0.7 percent. Spending on private non-residential projects was down by 0.6 percent. Spending on public construction projects dropped by 3.7 percent.

Something to look out for in the months ahead is the Federal Reserve’s reaction to lower-than-expected inflation. Oversupply is keeping oil and natural gas prices down. That could potentially cause the Fed to slow the pace of interest rate increases next year.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here:  Comerica_Economic_Weekly_ 06022017.

 

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May U.S. Employment

May Payrolls Up Just 138,000, Unemployment Rate Down to 4.3%

  • Payroll Employment increased by 138,000 jobs in May, below expectations.
  • The Unemployment Rate for May fell to 4.3 percent.
  • Average Hourly Earnings increased by 0.2 percent for the month; the average workweek was unchanged.
  • The U.S. International Trap Gap widened to -$47.6 billion in April.

Despite a stronger-than-expected ADP Employment Report for May, the official Bureau of Labor Statistics Employment Report showed a weaker-than-expected 138,000 net new payroll jobs for the month. Moreover, April and March payrolls were revised down by a total of 66,000 jobs. The pace of U.S. job growth appears to be easing, and this is what we have been expecting to see as the economic expansion matures. In 2014, a robust 250,000 net new payroll jobs were added per month. That declined to 226,000 per month in 2015, and to 187,000 per month in 2016. Through May we are averaging 162,000 net new payroll jobs per month in 2017. We expect payroll job gains to rebound in the coming months, but we do not expect to see a repeat of the robust job growth of 2014 in this business cycle. Despite weaker-than-expected payroll job growth for May, the unemployment rate unexpectedly fell to 4.3 percent. This was due to a combination of fluky inputs to the unemployment rate calculation. First, the household survey of employment showed a sizeable loss of 233,000 jobs for the month. It is not unusual to see the household survey dip one month and then rebound strongly the next month. Also, the labor force fell sharply by 429,000 workers in May. Again, it is quite normal to see large dips in the labor force followed by large gains. Average hourly earnings were up by 0.2 percent in May and by 2.5 percent over the previous 12 months. So we are not seeing a strong push from wages here. However, other wage surveys are warmer. The average workweek was unchanged at 34.4 hours.

Mining and logging industries continued to hire, adding 6,000 jobs for the month, consistent with the rising drilling rig count. Construction employment increased moderately, up 11,000 in May. Tight labor markets may be keeping construction employment in check. Manufacturing employment dipped by 1,000 jobs in May. We expect to see ongoing small losses in manufacturing employment. Wholesale trade gave up 2,100 jobs. Retail lost 6,100 jobs, consistent with anecdotal reports of store closings. Transportation and warehousing employment increased by 3,600 jobs. Utilities dropped 1,300 jobs in May. Information services gave up 2,000 jobs, while financial services gained 11,000. Professional and business services added 38,000 jobs, about as expected. Education and healthcare gained a respectable 47,000 jobs in May. Leisure and hospitality employment was up by a strong 31,000 jobs. The government sector was weak, losing 9,000 jobs in May, and accounting for an easy 20,000 job swing in the payroll totals for May. So net of retail and government, it was not a bad month for the establishment survey.

The U.S. international trade gap widened in June by $2.3 billion, to -$47.6 billion. Exports eased slightly while imports increased. Even though the value of the dollar has been giving up some ground this year, it is still relatively strong, which tends to weigh against exports and boost imports. The April inflation-adjusted trade gap in goods is a little wider than the Q1 average, so early in Q2 trade is shaping up to be a modest drag on GDP growth for the quarter. That could change with the May and June trade data

May’s weaker-than-expected jobs report and April’s bigger drag from trade are both negatives for the U.S. economy. However, they both look normal, especially given the maturity of the current business cycle. Also, they are countered by many other positive economic metrics. But both reports beg two important questions. First, will Trump Administration policies extend the already long expansion? The potential is there from tax reform and infrastructure spending, but the President’s political capital has been draining. The second key question is … does today’s weaker-than-expected data derail a Federal Reserve interest rate hike on June 14? We believe that the answer to that question is no. The fed funds futures market shows a strong 88.8 percent probability of a 25 basis point increase in the fed funds rate range on June 14.

Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is down to 2.15 percent. NYMEX crude oil is down to $47.68/barrel. Natural gas futures are down to $3.00/mmbtu.

PDF version of this Comerica Economic Alert click here: Employment_06022017.

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May ADP Jobs, ISM MF Index, UI Claims, April Construction Spending

   Strong Private Sector Jobs Report Raises Expectations

  • The May ADP Employment Report showed a strong 253,000 net gain in private sector jobs.
  • The ISM Manufacturing Index inched up to a positive 54.9 in May.
  • Initial Claims for Unemployment Insurance increased by 13,000 for the week ending May 27, to hit 248,000.
  • Construction Spending in April dipped by 1.4 percent.

Labor market indicators are in good shape heading into tomorrow’s official Bureau of Labor Statistics employment report for May. This is important because good labor data supports expectations that the Federal Reserve will raise the fed funds rate range by 25 basis points on June 14. The private ADP National Employment Report for May showed a net gain of 253,000 private sector jobs for the month. Adding about 10,000 for government sector employment gives us an estimate of 263,000 net new payroll jobs for the official BLS tally. Our initial estimate of May payroll job gains was 180,000, so today’s ADP data shows sizeable upside risk to that initial estimate. Noteworthy in the ADP data were gains in goods-producing industries. Construction employment was up by 37,000 jobs for the month. Manufacturing employment was still solid, gaining 8,000 for the month. Natural resources/mining employment was up by 3,000 jobs. Trade/transportation/utilities added 58,000 jobs. The service sector was also strong. Professional/business services employment was up by 88,000. Education/health services employment increased by 54,000.

Initial claims for unemployment insurance increased by 13,000 for the week ending May 27, to hit 248,000, staying in the very low range where they have been since the first of the year.  Continuing claims fell by 9,000 for the week ending May 20, to hit 1,915,000. Continuing claims are still trending downward, showing that companies are holding on to their workers, and that laid off workers are able to find new jobs quickly.

Construction spending in April dipped by 1.4 percent, consistent with the decline in housing starts for the month. Spending on private residential construction eased by 0.7 percent as the multifamily component eased. Spending on private non-residential projects was down by 0.6 percent, with most sub-categories down for the month. Spending on public construction projects dropped by 3.7 percent, with most sub-categories down.

Manufacturing conditions remain positive and improving. The Institute of Supply Management’s Non-Manufacturing Index inched up from 54.8 in April to 54.9 in May. The new orders, production and employment sub-indexes were all in positive territory. Anecdotal comments were favorable with some industries reporting pricing pressure on commodities. Fifteen out of 18 industries reported growth. Only apparel/leather and textile industries reported contraction in May.

Market Reaction: U.S. equity prices opened with gains. The yield in 10-Year T-bonds is up to 2.22 percent. NYMEX crude oil is up to $48.65/barrel. Natural gas futures are down to $3.00/mmbtu.

For a PDF version of this Comerica Economic Alert click here: ADP_06012017.

 

 

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Comerica Bank’s Arizona Index Stable

Comerica Bank’s Arizona Economic Activity Index dipped 0.3 percentage points in March to a level of 112.3. March’s index reading is 35 points, or 46 percent, above the index cyclical low of 77.0. The index averaged 110.3 points for all of 2016, three and two-fifths points above the average for 2015. February’s index reading was 112.6.

“The Comerica Bank Arizona Economic Activity Index eased slightly by 0.3 percent in March, about where it has been for four consecutive months. Job growth has eased in Arizona. The year-over-year change in payroll jobs has declined from 2.9 percent in July 2016 to 2.0 percent in April 2017. Ominously, the month-to-month pattern of job growth has been inconsistent since last November, alternating between net gains and net losses for the last six months. Our employment sub-index for Arizona was unchanged in March. Three other components were positive, including unemployment insurance claims (inverted), house prices and enplanements. The four negative index components in March were state exports, housing starts, sales tax revenue and hotel occupancy,” said Robert Dye, Chief Economist at Comerica Bank. “House prices in Phoenix have been increasing steadily since early 2016. As of March they were up 5.6 percent over the previous 12 months.”

For a PDF version of the complete Arizona Economic Outlook, click here:  Arizona_Index_0517.

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