Comerica Economic Weekly

There are many moving parts in the economic story this week. We can begin and end with central bank policy. China is responding to expectations for cooler growth. It looks like they may miss 7.5 percent real GDP growth target this year, closer to 7.0 percent looks more likely. The Peoples Bank of China just lowered their benchmark lending rate 40 basis points, the first rate cut in 2 years.

European Central Bank president Mario Draghi announced that he is ready to expand stimulus due to very weak inflation in the euro zone. This could mean heading into conventional QE with sovereign debt purchases. However, the ECB is still getting push back from Germany and others. More asset purchases by the ECB means more downward pressure on euro, helping European exports. The euro dropped against the dollar.

Japan is in technical recession, post a slight decline in Q3 real GDP growth after a big downshift in Q2. Prime Minister Abe will delay the second round of consumption tax hikes. The expectation of ongoing aggressive policy by the Bank of Japan is pushing the yen down against the dollar.

The price for West Texas Intermediate crude oil has stabilized, at least temporarily, near $75 per barrel. The national average price for unleaded regular gasoline is down to $2.84 per gallon, according to AAA.

U.S. stock prices trended up through the week, back into record territory. The yield on 10-Year Treasury bonds looks stable near 2.35 percent.

U.S. inflation metrics for October were stronger than expected given declining petroleum prices. The PPI for final demand was up 0.2 percent. The CPI was unchanged, supported by housing and transportation services.

Housing data was decent, but still range bound. Existing home sales for October gained 1.5 percent to 5.26 million. Still below the recent mid-2013 peak. October housing starts eased by 2.8 percent to a 1.01 million unit rate. But permits strengthened by 4.8 percent to a 1.08 million unit rate. The National Association of Home Builders Survey for November showed a strong gain in builders’ sentiment.

Manufacturing metrics look good. Regional Fed surveys were solid. The Industrial Production Index for October dipped by 0.1 percent due to the impact of weather patterns on utility output. Manufacturing IP gained 0.2 percent.

Labor metrics remain solid. Initial claims for unemployment insurance dropped by 2,000 to hit 291,000 for the week ending November 15. Continuing claims fell by 73,000 for the week ending November 8, to hit 2,330,000. We expect the U.S. unemployment rate to continue to trend down through 2015.

The Conference Board’s Leading Economic Index for October surged ahead by 0.9 percent, no worries there.

So the Federal Reserve is looking at solid output and labor data and mixed signals on inflation with energy and import prices easing while labor markets tighten. We think that the Fed looks through the disinflationary impact of energy prices and continue to pivot. The next step will be a revision to forward guidance on interest rates.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 11-21-14.

 

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October Consumer Prices, Existing Home Sales, Leading Indicators, November UI Claims

Low Oil Prices Dampen Consumer Inflation, Indicators Cruising into Q4

  • The October Consumer Price Index was unchanged as lower energy prices were met by higher air fares.
  • The October Core CPI gained 0.2 percent, and was up 1.8 percent over the previous 12 months.
  • Existing Home Sales for October increased by 1.5 percent to a 5.26 million unit rate.
  • The Conference Board’s Leading Economic Index for October rose sharply, by 0.9 percent.
  • Initial Claims for Unemployment Insurance fell by 2,000 to hit 291,000 for the week ending Nov. 15.

There are flurries, and then there are flurries. The flurry of economic numbers this morning was benign, unlike the lake-effect snow flurries in upstate New York. Today we see a nuanced inflation picture heading into the holiday season. Tuesday, the Producer Price Index for final demand for October was stronger than expected, gaining 0.2 percent despite falling energy prices. Today, we see that the Consumer Price Index for October was also stronger than expected, being unchanged for the month, contrary to the consensus expectations for a slight decline. Within the unchanged headline CPI there are pushes and pulls. Petroleum was a big pull. According to AAA, the national average price for regular unleaded gasoline today is $2.85 per gallon, well below the year-ago price of $3.21. In the CPI report for October the energy sub-index was down by 1.9 percent, its fourth consecutive monthly decline. Consumer food prices were up a tame 0.1 percent in October. Core CPI (all items less food and energy) was up more than expected, gaining a solid 0.2 percent for the month. Over the previous 12 months core CPI is up 1.8 percent. Pushing the core CPI are gains in services prices. Higher house prices and apartment rents have pushed the shelter sub-index up by 3.0 percent over the past year. In October core consumer prices were also supported by increases in airline fares, up 2.4 percent for the month. Adding complexity to the inflation outlook is a stronger dollar and a steadily declining unemployment rate.

Existing home sales for October increased by 1.5 percent to hit a 5.26 million unit rate. The months’ supply of existing homes for sale decreased to 5.1 months’ worth, indicating a tightening housing market. The median sales price of an existing home was up 5.5 percent in October over the previous 12 months. The Conference Board’s Leading Economic Index was up a strong 0.9 percent in October. Driving the gains were the interest rate spread, new orders, and unemployment insurance claims. Only one of the 10 components, stock prices, was down for the month. The Coincident Index gained only 0.1 percent in October, held down by the utilities component of industrial production. The Lagging Index dipped by 0.1 percent as commercial and industrial loans eased. Claims numbers continue to look good. Initial claims for unemployment insurance fell by 2,000 to hit a level of 291,000 for the week ending November 15. Continuing claims decreased by a noticeable 73,000 for the week ending November 8, to hit 2,330,000.

Market Reaction: Equity markets opened with gains. The 10-Year Treasury bond is yielding 2.34 percent. NYMEX crude oil is up to $74.91/barrel. Natural gas futures are down to $4.51/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: CPI 11-20-14.

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October Residential Construction, Producer Prices

Home Construction Still Range Bound, but Builder Sentiment Improves

  • October Housing Starts decreased by 2.8 percent to a 1,009,000 unit annual rate.
  • Permits for new residential construction increased in October by 4.8 percent to a 1,080,000 unit pace.
  • The Producer Price Index for Final Demand increased by 0.2 percent in October.

Housing related data continue to trend sideways for the most part. However, improving economic conditions and easing underwriting requirements for home mortgages are still expected to be positives in 2015. As we wrap up this year, though, construction metrics remain stuck near the million-units-per-year mark, where they have been since late 2013. In October, total housing starts decreased by 2.8 percent to an annual rate of 1.009 million units. Single-family starts increased by 4.2 percent to a 696,000 unit annual rate, the best rate there since November 2013. The volatile multifamily segment showed a 15.5 percent drop in starts to a 300,000 unit per year rate. Permits improved in October; total permits increased by 4.8 percent to hit a 1.08 million unit rate, supported by gains in both single and multifamily units. Separately from the construction numbers, the National Association of Home Builders reported that their composite home builders’ sentiment index increased strongly in October to 58, indicating a more optimistic outlook by home builders. Mortgage applications for home purchases jumped for the week ending November 14, by 11.7 percent, after increasing for the two previous weeks. This suggests that sales of both new and existing homes may improve at year end, providing motivation for builders. The combination of improving consumer sentiment and lower mortgage rates is helping, but the housing market remains constrained by very strict mortgage underwriting standards.

Producer prices in October increased by more than expected, with the headline PPI for final demand increasing by 0.2 percent, despite falling crude oil prices. The energy price index for final demand goods fell by 3.0 percent in October, its fourth consecutive monthly decline. Supporting producer prices in October were gains in food prices and increases in margins at wholesalers and retailers. The PPI for final demand less food and energy (core final demand) increased by 0.4 percent in October. The October PPI report shows an underlying current of demand-pull inflation as the U.S. economy improves, despite the recent drop in oil prices. We can say that the inflation picture right now is somewhat nuanced, with the overall economy warming up, energy prices dropping, import prices falling with a rising dollar, and a falling unemployment rate that is approaching NAIRU territory. NAIRU is an acronym that stands for the non-accelerating inflation rate of unemployment. This is a somewhat fuzzy (technical term) threshold level, below which wage inflation tends to heat up.

Market Reaction: Equity markets opened with losses. The yield on 10-Year Treasury bonds is up to 2.35 percent. NYMEX crude oil is up to $75.04/barrel. Natural gas futures are up to $4.60/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: Housing Starts 111914.

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October Industrial Production, Empire State Survey

Production Eases on Utilities and Mining

  • Industrial Production for October eased by 0.1 percent as utility and mining output dropped.
  • The Empire State Manufacturing Survey increased in November to 10.2.

Total industrial production for October eased by 0.1 percent despite a modest gain in manufacturing output. Over the year ending in October, total industrial production is up 4.0 percent. Capacity utilization dipped to 78.9 percent. Capacity utilization is a measure of slack in the industrial sector. Capacity utilization has been on an increasing trend since mid-2009 but remains low by historical standards. October’s dip in output was driven by the more volatile utility and mining sectors. Utility output surged in September, up by 4.2 percent, following weather-related declines in June and July. The utility output data is seasonally adjusted, but unseasonal weather patterns make the data volatile. After the September surge, utility output declined by 0.7 percent in October. Utilities accounted for 10 percent of total industrial production in 2013. Mining output dipped by 0.9 percent in October after increasing by 1.6 percent in September. In the Industrial Production Report, the mining sector, including coal and non-energy mining, accounted for 16 percent of total industrial production in 2013. There is no way to tell in this report if the recent decline in oil prices are behind the October mining sector output decline, or if it is simply a reversion after a strong September. In the separate Drilling Productivity Report for November, issued last week by the U.S. Energy Information Administration, there is no indication of reduced drilling activity or reduced production from seven onshore regions that account for 95 percent of domestic oil production gains from 2011 to 2013.

Output in the manufacturing sector increased by 0.2 percent in October, matching the September gain. Overall, gains in nondurable goods industries were a little stronger, up by 0.3 percent, led by a 0.8 percent increase in output in rubber and plastics products. Durable goods industries increased output by just 0.1 percent in October. A 1.3 percent gain in machinery output was countered by declines in nonmetallic minerals and in motor vehicles and parts. Total auto and truck output declined for the third consecutive month to an 11.07 million unit annual rate in October.

The Empire State Manufacturing Survey for November showed an overall improvement in manufacturing conditions for the New York area.

Market Reaction: Equity markets are up. The yield on 10-Year Treasury bonds is up to 2.34 percent. NYMEX crude oil is down to $74.95/barrel. Natural gas futures are up to $4.28/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: Industrial Production 11-17-14.

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Comerica Economic Weekly

It was a fairly light week for U.S. economic data. In this week’s data we begin to see some of the positive impact to consumers of lower gasoline prices. According to AAA, today’s national average price for a gallon of unleaded gasoline is $2.91. A year ago it was $3.19. AAA reports that this is the longest consecutive gasoline price decline since 2008.

With gasoline prices falling, the stock market rebounding, job growth steady and overall inflation low, consumers are feeling better. The University of Michigan preliminary Consumer Sentiment Index for November increased to 89.4 from October’s 86.9.

Improved consumer sentiment, along with steady job growth and lower gasoline prices, was supportive of non-energy retail sales in October. October total retail sales increased by 0.3 percent, even with the drag from lower gasoline prices on service station sales. Service station sales dropped by 1.5 percent for the month. Most other categories of retail sales showed gains.

Weekly chain store sales data for the week ending November 8 looks good. The ICSC Chain Store Sales Index was up 1.5 percent for the week. Unseasonably cold weather for much of the country in mid-November will motivate clothing store sales into Black Friday.

With furnaces running in mid-November, utility output will see a boost, as will consumer spending on household services for the fourth quarter.

Expectations are growing for this year’s holiday shopping season. For the reasons already cited, we agree with the positive expectations. However, we have to be two-handed economists and say, on the other hand, this is an older population that is not going to overspend itself. So we look for solid spending numbers in November and December, but not a blow out.

This week’s labor data was solid. The Job Openings and Labor Turnover Survey for September showed an uptick in hiring. Job openings ticked down but remain with an overall upward trend. The quits rate increased in September consistent with the increasing confidence of workers that they will be able to find another job.

Initial claims for unemployment insurance for the week ending November 8 increased by 12,000 to hit a still-very-low level of 290,000. Continuing claims for unemployment insurance increase by 36,000 for the week ending November 1, to reach 2,392,000, also still a very low number.

Business inventories increased by 0.3 percent in September. This is a Q3 number and so has limited impact on Q4.

The National Federation of Independent Business’s Small Business Optimism Index for October increased to 96.1, continuing a moderate upward trend.

 For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here:CMAEconWeekly 11-14-14.

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November 2014, Comerica U.S. Economic Update

Economic Data Soothes After October Financial Market Jitters

After significant financial market volatility in October, business conditions appear to be improving. Financial markets have stabilized, with equity indexes reaching new highs by mid-November. Economic indicators remain strong with Q3 real GDP growth reported at 3.5 percent. We expect Q3 real GDP growth to be revised down to a still-respectable 3.0 percent. The U.S. unemployment rate declined to 5.8 percent in October with the help of an additional 214,000 payroll jobs. Also in October, the Federal Reserve followed through on its commitment to end new asset purchases. Geopolitical tension appears to be easing, although there is some concern that the Ukraine crises may heat up again. Ebola is fading from U.S. headlines. The mid-term elections produced what is generally regarded as a more business-friendly Congress. Oil prices have fallen substantially from a recent high of over $107 per barrel for West Texas Intermediate in late June, down to $77 per barrel in early November.

The large drop in oil prices creates winners and losers in the U.S. economy. Among the winners are households enjoying lower gasoline costs, energy consuming industries, such as airlines, and business that will feel a rebound in non-energy consumer discretionary spending, such as restaurants. Among the losers will be petroleum drilling and exploration related companies that are engaged in the most expensive projects, as some of these projects may now be deemed uneconomical.With lower oil prices, the economies of energy producing states, including Texas, may show slower growth than previously expected. Current crude oil and natural gas prices are high enough to sustain at least moderate economic growth in most energy producing regions, including those in Texas. However, a significant and sustained drop in oil prices, below $70 per barrel, does represent a downside risk for the Texas economy.

The ending of new asset purchases by the Fed is a step in the long process of pivoting away from extraordinary monetary policy. We expect that the next step in policy normalization will be a change in the forward guidance for the fed funds rate, which could come in December. We still expect to see interest rate lift-off around mid-year 2015. Sometime after interest rate lift-off, the Federal Reserve will end its program of reinvesting maturing assets, allowing its balance sheet to shrink slowly. This view of policy is complicated by lower oil prices, which are having a dis-inflationary effect. We expect the Fed to look past the near-term dis-inflationary impact of lower oil prices and take a cautious stance toward the longer term inflationary potential of low unemployment rates. Another complication to monetary policy normalization is the extraordinary policy of other central banks. The desynchronization of global monetary policy, exemplified by recent easing actions by both the Bank of Japan and the European Central Bank, is contributing to exchange rate volatility. A strengthening dollar, against a broad basket of other currencies, is also dis-inflationary, keeping U.S. import prices low. Conversely, higher U.S. export prices are a potential headwind to U.S. exporters and to overall U.S. economic growth.

For a PDF version of the complete Comerica U.S. Monthly with additional commentary, tables, and charts, click here: USEconomic1114.

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Comerica Economic Weekly

U.S. economic data released in the first week of November was generally positive and consistent with an ongoing GDP expansion. Payroll employment for October increased by 214,000, a little below expectations of about 230,000, but still a good number. August and September jobs numbers were revised up. The unemployment rate dropped a tenth to 5.8 percent with a very large 683,000 job increase in household employment. In October, the average workweek increased by a tenth to 34.6 hours. Average hourly earnings increased by 0.1 percent.

Saudi Arabia cut its crude export price to U.S. customers, pushing the price for West Texas Intermediate lower, down to $76.30 per barrel on Tuesday. It is unclear at this time how long the Saudis can sustain lower prices without straining their fiscal position. By Friday morning prices were firmer, near $79. The inflation picture is complicated by falling energy prices and by a stronger dollar. At the same time that we have increasing potential for higher wages due to tightening labor markets, we have decreasing inflation from lower energy prices and from falling import prices due to a strengthening dollar. The Federal Reserve will be looking at inflation indicators very carefully in the months ahead as it contemplates the next step in normalizing monetary policy, interest rate lift-off.

Lower oil prices, in the $80-$70 per barrel range for WTI, will keep production strong in the U.S. However, we will see more reports of expensive new exploration projects being reduced or curtailed. Lower oil prices are positive for energy consuming industries and regions, adding to corporate profit margins and supporting non-energy consumer spending. This will shift economic growth marginally toward energy consuming regions (the East and West Coasts), putting more downward pressure on unemployment rates there.

The ISM Manufacturing Index for October recaptured the robust reading of 59.0 that it had in August, tying the highest reading since March 2011. The ISM Non-Manufacturing Index for October eased to 57.1 from September’s 58.6. This is still a strong reading for the index. Anecdotal comments in the ISM Non-MF survey were mixed, ranging from positive to uncertain. This is not surprising given that the survey was in the field in early October at the time of the stock market sell off.

Total construction spending in the U.S. decreased by 0.4 percent in September, weighed down by declining spending on publically funded projects.

The U.S. international trade gap widened by $3 billion to $43.0 billion in September. This, along with weaker-than-expected construction spending in September implies a negative revision to Q3 real GDP growth, which was announced last week at a 3.5 percent annual rate. We expect to see a revision to about 3.0 percent real GDP growth for Q3.

Auto sales were little changed in October, ticking up to a 16.5 million unit pace. Lower gasoline prices will help sales of SUVs and trucks this winter. It looks like we are at an interesting inflection point for auto sales. Solid job growth, increasing consumer confidence and lower oil prices all point to ongoing gains. However, if we remove the August surge to a 17.5 million unit sales rate, auto sales look range bound since last May. We expect auto sales to improve in November.

Third quarter productivity increased at a 2.0 percent annual rate. Unit labor costs remained well contained, increasing at just a 0.3 percent annual rate.

Initial claims for unemployment insurance decreased by 10,000 for the week ending November 1, to hit 278,000, a very low number. Continuing claims for the week ending October 25 fell by 39,000 to hit 2,348,000, also a very low number.

 For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 11-07-14.

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October U.S. Employment

Labor Market Metrics Continue to Improve

  • The October Payroll Employment Survey showed a gain of 214,000 payroll jobs.
  • The Unemployment Rate for October dropped to 5.8 percent.
  • Average Weekly Hours for all employees increased by one-tenth to 34.6 hours in October.
  • Average Hourly Earnings were up by 0.1 percent in October and by 2.0 percent over the previous 12 months.

The October labor data are consistent with an ongoing moderate GDP expansion. Total payroll employment increased by 214,000, a little below expectations of about 230,000, but still a good number. August and September jobs numbers were revised up. Remember the weaker-than-expected August job gain of 142,000? Well don’t. It has been revised up to 203,000. The unemployment rate dropped a tenth to 5.8 percent with a very large 683,000 job increase in household employment. In October, the average workweek increased by a tenth to 34.6 hours. Average hourly earnings increased by 0.1 percent. In short, a good report.

A U.S. unemployment rate below about 5.5 percent is consistent with accelerating wages, so we are starting to get into the zone where the Federal Reserve will be studying and debating signs of wage inflation. The overall inflation picture is complicated by falling energy prices and by a stronger dollar. At the same time that we have increasing inflation potential from tightening labor markets, we have decreasing inflation from lower energy prices and from falling import prices due to a strengthening dollar. The Federal Reserve will be looking at inflation indicators very carefully in the months ahead as it contemplates the next step in normalizing monetary policy, interest rate lift-off.

Lower oil prices, in the $80-$70 per barrel range for WTI, will keep production strong in the U.S. However, we will see more reports of expensive new exploration projects being reduced or curtailed. Lower oil prices are positive for energy consuming industries and regions, adding to corporate profit margins and supporting non-energy consumer spending. This will shift economic growth marginally toward energy consuming regions (the East and West Coasts), putting more downward pressure on unemployment rates there.

Job gains in October were broadly distributed across industries. Oil and gas extraction added 2,500 jobs in October. We expect to see job growth in oil and gas extraction ease in the months ahead, reflecting lower oil prices. Construction industries added 12,000 jobs in October with gains in residential building activity. Manufacturing was strong, adding 15,000 jobs, mostly in durable goods industries. Wholesale trade employment was up by 8,500. Retail trade added 27,100 jobs, preparing for what we expect to be a good holiday shopping season. Transportation and warehousing employment was up by 13,300. Financial industries added only 3,000 jobs. Employment in professional and business services increased by 37,000 jobs. Education and healthcare was up a strong 41,000 jobs. Leisure and hospitality employment surged by 52,000 jobs. Lower gasoline prices will help there. Government employment was up by 5,000 jobs in October.

Market Reaction: U.S. equity markets opened with losses. The 10-Year T-bond yield is down to 2.34 percent. NYMEX crude is down to $78.74/barrel. Natural gas futures are down to $4.45/mmbtu.

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For a PDF version of this Comerica Economic Alert click here:Employment 11-07-14.

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October ADP Employment, ISM Non-MF Index

U.S. Economic Data Looks Strong Heading into Q4

  • The October ADP Employment Report showed a strong gain of 230,000 private-sector jobs.
  • The ISM Non-Manufacturing Index for October eased to a still strong 57.1 percent.

The ADP National Employment Report for October showed a strong gain of 230,000 private sector jobs for the month. Government sector job gains have averaged about 6,000 per month this year. If we assume ADP is an unbiased estimator for the official BLS job count, we can add 6,000 to 230,000 to get an estimate of 236,000 total payroll jobs added in October. The official BLS numbers are due out this Friday morning at 8:30 Eastern Time. The ADP numbers show a strong gain of 102,000 net jobs by small businesses (with less than 50 employees). Medium-sized businesses (50-499 employees) added a strong 122,000 jobs in October. Large businesses (over 500 employees) added only 5,000 jobs in October. The relatively meager large business payroll gains for October are a noticeable downshift from previous months. The January through September average gain for large businesses is about 50,000 jobs per month. Overall this looks like a solid report justifying positive expectations for the official jobs numbers on Friday. We will continue to monitor large business job creation to see if October was an inconsequential blip, or the start of a trend. Even with a gain of about 236,000 total payroll jobs for October, we may not see a decline in the 5.9 percent unemployment rate reported in September. The civilian labor force declined through August and September, helping to pull the unemployment rate down. So we are due for a snap back in the labor force count. If that is reported for October, the unemployment rate could stay at 5.9 percent even with solid job growth.

The ISM Non-Manufacturing Index for October eased to 57.1 from September’s 58.6. This is still a strong reading for the index, consistent with an ongoing moderate GDP expansion through the fourth quarter. Eight out of 10 sub-indexes were solidly in expansion territory, including production, new orders and employment. Only supplier deliveries and inventories fell just below the break-even 50 mark, both hitting 49.5 for the month. Sixteen out of 18 industries reported expansion, only two – arts/entertainment/recreation and finance/insurance reported contraction. Anecdotal comments were mixed, ranging from positive to uncertain. This is not surprising given that the survey was in the field in early October at the time of the stock market sell-off.

Market Reaction:U.S. stock prices opened with gains following the mid-term election results. The yield on 10-Year T-bonds is up to 2.36 percent. NYMEX crude oil is up to $79.20/barrel. Natural gas futures are up to $4.30/mmBTU.

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For a PDF version of this Comerica Economic Alert click here: ADP 11-05-14.

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September International Trade, Oil Prices, October Auto Sales

Trade Gap Widens, Implies Negative Revision to Q3 GDP

  • The U.S. International Trade Gap widened to -$43.0 billion in September.
  • Oil Prices are down as Saudi Arabia cut prices. WTI is trading at $77 per barrel.
  • Light Vehicle Sales ticked up to a 16.5 million unit annual rate in October.

The U.S. international trade gap widened by $3 billion to $43.0 billion in October. This implies a negative revision to Q3 real GDP growth which was announced last week at a 3.5 percent annual rate. Shaving off Q3 real GDP due to weaker-than-expected trade and construction spending in September, we expect to see a revision to about 3.0 percent real GDP growth for Q3. Nominal imports increased marginally in September, by $0.1 billion on a slight increase in the imports of services. Nominal exports decreased by $3.0 billion with most of the drag on the goods side. Even after accounting for price declines, real petroleum exports dipped after increasing through July and August. Trade is a complicated story now. The U.S. economy is in mid-cycle, growing moderately, which typically means increasing imports. However, we are developing our export capacity for energy and other manufactured products. Also, lower global energy prices are a drag on U.S. exports as low energy prices put high cost drilling projects out of the money. Meanwhile, the desynchronization of global monetary policy is acting to elevate the value of the dollar, particularly against the yen and the euro, making U.S. exports more expensive and imports cheaper.

Saudi Arabia cut its crude export price to U.S. customers, pushing future prices for West Texas Intermediate lower. The NYMEX front-month contract for WTI was below $77 per barrel at publication time. High U.S. inventories are also a drag on energy prices. We expect to see more announcements of cutbacks in the most expensive U.S. projects, but the bulk of U.S. production remains profitable in the $70 to $80 per barrel range. Saudi Arabia appears to be fighting to preserve market share against a rapidly rising sea of U.S. oil. It is unclear at this time how long the Saudis can sustain lower prices with-out straining their fiscal position. Lower oil prices have the potential to shift the regional pattern of growth in the U.S. away from the eastern edge of the Rockies and back toward the coasts, if sustained.

Auto sales were little changed in October, ticking up to a 16.5 million unit pace from September’s 16.4 million. Lower gasoline prices will help sales of SUVs and trucks this winter. It looks like we are at an interesting inflection point for auto sales. Solid job growth, increasing consumer confidence and lower oil prices all point to ongoing gains. However, if we remove the August surge to a 17.5 million unit sales rate, auto sales look range bound since last May. Our expectation is that auto sales improve in November, but if they do not, then August looks more like an aberration than an increasing trend.

Market Reaction: U.S. equity prices are down. The 10-year Treasury yield is down to 2.32 percent. NYMEX crude oil is down to $76.27/barrel. Natural gas futures are up to $4.22/mmbtu

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For a PDF version of this Comerica Economic Alert click here: Int Trade 11-04-14.

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