February Income and Spending, Pending Home Sales

Consumers Spend Less, Save More…Preparing to Buy Houses?

  • U.S. Personal Income increased by 0.4 percent in February, boosted by dividends.
  • After accounting for inflation and taxes, Real Disposable Personal Income gained 0.2 percent.
  • Real Personal Consumption Expenditures decreased by 0.1 percent in February.
  • The Pending Home Sales Index for February increased by 3.1 percent.

Consumer spending accounts for two-thirds of GDP so we watch that closely. When it behaves out of character, that challenges our assumptions about GDP. Now is one of those times when real consumer spending is going off script, challenging our assumptions. Despite solid real income growth this winter, real consumer spending has been weak. Real disposable personal income has increased by an average of 0.5 percent over December, January and February. Meanwhile, the monthly change in real consumer spending was just 0.1 percent in December, 0.2 percent in January and -0.1 percent in February. Put another way, real disposable personal income increased by about $17 billion from November through February (non-annualized), while real consumer spending increased by a minimal $2 billion. This implies that we have had a large increase in the personal saving rate. Indeed we see that the personal saving rate has jumped from a recent low of 4.4 percent in November, to 5.8 percent in February. Large increases in the personal saving rate are often associated with real events, including a sudden cooling of overall economic activity, or the anticipation of a tax increase. That does not appear to be the case now as job growth over the winter has been very strong and taxes are stable. Indeed, with strong job growth we would expect consumers to be more confident about spending their income, however, recently they are less so.  The income and spending data are not telling us why personal saving has ramped up. So we will go out on a limb and speculate about what might be going on with the saving rate. We observe that the personal saving rate was trending up from the beginning of 2008 through the end of 2012 (see graph). Federal taxes were increased in January 2013, and the saving rate reset from a high 10.5 percent in December 2012 to 4.5 percent in January 2013. There was no clear trend in the saving rate from its value of 4.5 January 2013 to 4.4 percent in November 2014. Now, with another tax year behind us, households are getting used to a heavier tax burden, and may be starting to resume their upward trend in savings. A less materialistic and more debt averse consumer may require us to be more conservative in our outlook for consumer spending in the years ahead. This in turn argues for a more conservative view on real GDP growth.

On the other hand, perhaps households are saving up for down payments on houses. The millennials have been late to the housing game, burdened by a weak job market and heavy student debt. Housing markets are due for a break out. In February we saw new home sales surge by 7.8 percent despite bad weather. The February pending Home Sales Index increased by 3.1 percent, suggesting we could see gains in existing homes sales in March. Stay tuned.

Market Reaction: U.S. equity markets opened with gains. The yield on the 10-year Treasury bond is steady at 1.95 percent. NYMEX crude is down to $48.34/barrel. Natural gas futures are down to $2.65/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: Personal Income 033015.

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Comerica Economic Weekly

It was a good news/bad news story at the end of March, providing us with cause for optimism and also cause for caution.

Good news came from new home sales. One month does not make a trend, but February new home sales increased by a stronger-than-expected 7.8 percent, to a 539,000 unit annual rate. This is the best monthly sales number since February 2008, and a clear upside breakout from the recent flat trend. Months’ supply of new homes for sale dipped to a tight 4.7 months’ worth, a strong signal for builders, affirming our expectations for increased residential construction activity this year, supporting mid-year GDP. The median sales price of a new home in February was up by 2.6 percent over the last year. The mix of new homes for sale may suppress median prices if more smaller or less-expensive homes are being built.

Existing home sales also increased in February, up by 1.2 percent to a 4,880,000 annual rate. Unlike new homes sales, existing home sales are not as depressed compared to historical norms. The months’ supply of existing homes for sale is also tight, at 4.6 months. The median selling price of an existing home is up 7.5 percent from February 2014.

The Consumer Price Index for February increased by 0.2 percent. With firmer gasoline prices, overall consumer inflation increased, reducing a potential conflict for the Federal Reserve. Weak inflation, disinflation or outright deflation all make it politically more challenging for the Federal Reserve to increase interest rates despite the ample evidence of significant tightening in labor markets. The February CPI report bolsters the Fed’s view on the transient nature of low energy prices. The CPI energy index was up by 1.0 percent for the month, after falling by 9.7 percent in January. Consumer food prices gained 0.2 percent in February. The core CPI (all items less food and energy) also increased by 0.2 percent for the month. Over the previous 12 months headline CPI is unchanged due to the drop in gasoline prices last year, but core CPI is up by 1.7 percent.

A cautionary note was struck by durable goods orders and by corporate profits. New orders for durable goods eased in February by 1.4 percent. The series is subject to volatility from both defense and nondefense aircraft orders. Headwinds are developing in durable goods manufacturing from reduced oil field activity and a strengthening dollar weighing on exports.

The third estimate of 2014Q1 real GDP growth was unrevised at 2.2 percent. Along with the GDP data we see that nominal corporate profits declined by 1.4 percent, weighed down by financial services and utilities.

We can end on an up note. Initial claims for unemployment insurance for the week ending March 21 decreased by 9,000 to hit 282,000, a very healthy number. Continuing claims for the week ending March 14 fell by 6,000 to hit 2,416,000, also a very good number.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 03-27-15.

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February Home Sales and Consumer Prices

Breakout Month for New Home Sales Despite Bad Weather

  • New Home Sales for February increased by 7.8 percent to an annual rate of 539,000 units.
  • February Existing Home Sales gained2 percent, to a 4,880,000 unit annual rate.
  • The Consumer Price Index for February increased by 0.2 percent as energy prices climbed.

On the heels of the March FOMC meeting, we see some data today that will help clear the path for the Federal Reserve, as they position themselves to begin increasing the fed funds rate this year. Data point number one is a breakout number for new home sales. As we are fond of saying, one month does not make a trend, but February new home sales increased by a stronger-than-expected 7.8 percent, to a 539,000 unit annual rate. This is the best monthly sales number since February 2008, and a clear upside breakout from the recent flat trend. We report seasonally adjusted numbers, but it is noteworthy that February’s non-seasonally adjusted sales rate also increased significantly, even with very bad weather in much of the country, and is about even with the non-seasonally adjusted rate from May 2014. Months’ supply of new homes for sale dipped to a tight 4.7 months’ worth, a positive signal for builders. The median sales price of a new home in February was up by 2.6 percent over the last year. The mix of new homes for sale may suppress median prices if more smaller or less expensive homes are being built. Existing home sales also increased in February, up by 1.2 percent to a 4,880,000 annual rate. Unlike new homes sales, existing home sales are not as depressed compared to historical norms. The months’ supply of existing homes for sale is also tight, at 4.6 months. The median selling price of an existing home is up 7.5 percent from February 2014. The combination of strong job growth, increasing home sales and tight supply is a strong positive signal for builders, affirming our expectations for increased residential construction activity this year.

Data point number two is the Consumer Price Index, which, for February, increased by 0.2 percent. With firmer gasoline prices, overall consumer inflation increased, reducing a potential conflict for the Federal Reserve.  Weak inflation, disinflation or outright deflation all make it politically more challenging for the Federal Reserve to increase interest rates despite the ample evidence of significant tightening in labor markets. The February CPI report bolsters the Fed’s view on the transient nature of low energy prices. Relatively stable crude oil prices combined with labor issues at U.S. refiners boosted gasoline prices in February. The overall CPI energy index was up by 1.0 percent for the month, after falling by 9.7 percent in January. Consumer food prices gained 0.2 percent in February. The core CPI (all items less food and energy) also increased by 0.2 percent for the month. Over the previous 12 months headline CPI is unchanged due to the drop in gasoline prices last year, but core CPI is up by 1.7 percent.

Market Reaction: U.S. equity markets are gaining. The 10-year Treasury Bond yield is up to 1.91 percent. NYMEX crude oil is up to $47.53/barrel. Natural gas futures are up to $2.82/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: New_Home Sales 03-24-15.

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Comerica Economic Weekly

This week’s U.S. economic news was dominated by the Federal Reserve and their monetary policy announcement of March 18. As expected, the FOMC removed the word “patient” from their forward guidance on interest rates. FOMC chairwoman Janet Yellen, in her post-FOMC-meeting press conference, made a point of saying that the removal of the word patient does not mean that the Fed is impatient about raising short-term interest rates. Nonetheless, it does mean that the Fed has taken another step toward interest rate lift-off and monetary policy normalization.

Yellen also said that the fed funds rate would not be changed at the next FOMC meeting over April 28/29. This brackets interest rate lift-off sometime over the five FOMC meetings from mid-June through mid-December. It is most likely that the FOMC will announce lift-off at a meeting that is followed by a press conference. This reduces the choices to three meetings…June 16/17, September 16/17 or December 15/16. We eliminate the December meeting by looking at the March 18 dot plot of FOMC members’ expectations about the appropriate pace of policy firming. The dot plot shows that a strong majority of the FOMC believe that the fed funds rate should be at 50 basis points or higher by the end of 2015. They would likely not get to 50 basis points by the end of 2015 if they start lift-off on December 16.

This leaves either June 17 or September 17 as the most likely dates for interest rate lift-off. In her press conference, Yellen was asked specifically about the June date, and she would not rule that out. However, the Fed is strenuously trying to show that the date is not pre-determined, and that the exact timing of interest rate lift-off will be data dependent. Aside from the normal focus on labor market metrics and inflation, the rising value of the dollar and the falling cost of crude oil are complicating the analysis.

We believe that the Fed will continue to view the deflationary pull of low oil prices as a transient event, as they will the deflationary pull of low import prices due to a strong dollar. The headwinds against export growth from a strong dollar may be more lasting if they result in a structural adjustment to U.S. export industries. However, we believe that the Fed will maintain a strong focus on the potential for wage inflation as the unemployment rate descends through this year. We forecast the unemployment rate to average 5.0 percent in 2015Q4, slightly lower than the central tendency of the economic projections of the members of the FOMC, at about 5.1 percent.

Even though the exact timing of interest rate lift-off may not yet be determined, the Fed will want to manage financial market expectations about lift-off in order to minimize shocks to financial markets. We expect the Fed to strongly telegraph its intention to raise the fed funds rate at least one meeting prior to lift-off. Given our expectation that lift-off will most likely occur in June, we expect to see a strong hint of that at the next FOMC meeting over April 28/29. Absent that hint at the end of April, our expectation for lift-off shifts to September.

Collectively, members of the FOMC, including Janet Yellen, have implied that the upward trajectory of the fed funds rate will be shallower than it has been in previous lift-off cycles. The Fed’s dot plot shows FOMC members’ expectations of a shallow increase in the fed funds rate to near 3 percent by the end of 2017.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 03-20-15.

 

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February Residential Construction, Industrial Production

Housing Stops and Industrial Reduction

  • February Housing Starts fell hard by 17.0 percent to an 897,000 unit annual rate.
  • Permits for new residential construction increased in February by 3.0 percent to a 1,092,000 unit pace.
  • The National Association of Home Builders’ Builder Confidence index dropped to 53 in March.
  • Industrial Production gained only 0.1 percent in February as manufacturing output eased.

U.S. economic data is sagging going into the Federal Open Market Committee’s two-day meeting, which began this morning. Residential construction activity was snowed out in February. New housing starts fell by 17.0 percent for the month, with declines in all four Census regions. The Northeast saw the biggest cooldown, with housing starts shrinking by 56.5 percent in February. In the Midwest, starts fell by 37.0 percent. The South was down slightly at -2.5 percent, while starts in the West dipped by 18.2 percent. Losses were shared across single- and multi-family categories. Single-family starts were down 14.9 percent nationwide. Multi-family starts dropped by 21.6 percent. Now for the better news: permits for new construction increased by 3.0 percent in February, indicating that builders plan to resume activity after the big thaw. Single-family permits were a bit weak, easing by 6.2 percent. But multi-family permits roared ahead. Weather was clearly a factor in the weak February residential construction data but that is not the whole story. Sales of new homes have been range-bound for more than two years. We expect to see some moderate improvement in new home sales this spring, supported by robust job growth, and that will provide more incentive for builders.

According to the National Association of Homebuilders, builder confidence slipped in March to an index level of 53.  This is still in positive territory. The drop in builder confidence stems mostly from supply chain issues, including lot availability and labor shortages. Tight underwriting standards are also blamed. Given these complaints, the NAHB survey reads more as a lagging indicator of builder confidence than a leading indicator.

Industrial production registered a weak 0.1 percent increase in February. The small gain was supported by a large 7.3 percent increase in utility output for the month that was driven by the bad weather. Manufacturing output decreased by 0.2 percent in February, consistent with the moderate declining trend in auto sales over the last three months. Likewise, motor vehicle assemblies have dropped in December, January and February. We expect to see a rebound in auto sales in March and April, and this will support strong manufacturing output. Capacity utilization dipped to 78.9 in February.

Market Reaction: Equity markets opened with losses. The yield on 10-Year Treasury bonds is down to 2.06 percent. NYMEX crude oil is down to $43.50/barrel. Natural gas futures are up to $2.83/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: Housing Starts 031715.

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Comerica Economic Weekly

U.S. data from the second week of March were disharmonious with the strong February employment data of the week before. Weather, oil prices, the strong dollar, the roll out of the Affordable Care Act, amongst other factors, are retuning parts of the economy after resonant GDP growth through the middle of last year.

This is normal. There are always notes of discord. Fortunately, we now have, beneath the sometimes fragmented melody, a foundation of strong job creation. As long as job growth remains robust, the economy continues to create wealth and opportunity.

The JOLTS data from January point to ongoing job gains through the first half of 2015. The job openings rate is staying strong, at 3.4 percent of the sum of total employment and total openings. This is just above the cyclical peak of late-2006/early-2007. We see in the JOLTS data that layoffs in mining and logging, which includes oil and gas production, have increased noticeably from 14,000 in January 2014, to 26,000 in January 2015, consistent with lower oil prices and reduced oil field activity.

Initial claims for unemployment insurance decreased by 36,000 to 289,000 for the week ending March 7. Continuing claims dropped by 5,000 for the week ending February 28, to 2,418,000. With a jump in North Dakota claims we see more evidence of the impact of lower oil prices on oil producing regions in the U.S.

Business confidence ticked up in February, according to the National Federation of Independent Business’s Small Business Optimism Index. The employment component of that index remains solidly positive.

Retail sales in February were not solid, nor positive. Retail sales in February fell by 0.6 percent, the third consecutive monthly drop. Cold weather is widely cited for weak February sales, leading us to expect a March and April rebound.

Business inventories were unchanged in January, just as they were in December. Meanwhile, total business sales decreased in those two months, meaning that the overall inventory-to-sales ratio has been climbing. Stronger retail sales this spring will help to rebalance the ratio.

The University of Michigan’s Consumer Sentiment Index, soon to be renamed the Harbaugh Index (not really), slipped for the second month in March. Gasoline prices bounced off the bottom and the stock market declined early in the month.

We “impatiently” await the FOMC meeting.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here:  CMAEconWeekly 03-13-15.

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February Retail Sales, January Inventories, March UI Claims

Sales Disappoint Again, Weather Blamed, Gasoline Prices Up

  • February Retail Sales fell by 0.6 percent; down for the third consecutive month.
  • Ex-auto Retail Sales decreased by 0.1 percent even as gasoline sales increased.
  • Business Inventories for January were unchanged for the second month in a row.
  • Initial Claims for Unemployment Insurance fell by 36,000 to hit 289,000 for the week ending March 7.

U.S. nominal retail sales fell again in February, for the third consecutive month. Sales fell by 0.6 percent in February, after dipping by 0.8 percent in January and by 0.9 percent in December. December and January retail sales were dragged down by falling gasoline prices and by falling auto sales. However, in February gasoline prices firmed and service station sales increased by 1.5 percent. Unit auto sales dipped again in February to a 16.2 million unit rate as temperatures plummeted across the Midwest and Northeast. Retail sales of motor vehicles and parts fell by 2.5 percent for the month. We can expect that some pent-up demand will get spent out in March and April, but it looks like consumer discretionary spending in 2015Q1 is going to be weak.  That is not to say that total consumer spending will be weak in Q1. The cold weather implies a jump in home heating bills and that will show up in the housing and utilities component of consumer services spending in the Q1 GDP accounting. Also, consumers are spending more money on healthcare with the roll out of the Affordable Care Act. The healthcare component of consumer services spending has increased at a 4-5 percent annualized rate for the last three quarters. That may mean that there is less money in household budgets for discretionary spending.

Business inventories were unchanged in January, following another unch in December. Meanwhile, total business sales decreased in those two months, meaning that the overall inventory-to-sales ratio has been climbing. While some of the movement in inventories and sales may be due to price effects of crude oil and petroleum products, this trend bears watching to see if it eventually invites production cuts to realign inventories.

Initial claims for unemployment insurance decreased by 36,000 to 289,000 for the week ending March 7. The series looks like it is trending right at 300,000 for the past three months, and that is a very good number. Continuing claims dropped by 5,000 for the week ending February 28, to 2,418,000. We are starting to see some evidence of the impact of lower oil prices on oil producing regions in the U.S. North Dakota has seen a jump in monthly unemployment insurance claims from November through January, compared with the very low levels they experienced last summer.

Market Reaction: Equity markets opened with gains. The 10-year Treasury yield is down to 2.08 percent. NYMEX crude oil is down to $47.83/barrel. Natural gas futures are down to $2.84/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: Retail Sales 03-12-15.

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March 2015, Comerica U.S. Economic Update

The U.S. jobs machine remains in high gear. Despite bad weather, 295,000 payroll jobs were added on net in February. Job gains were broad-based but there was a decline in the mining sector of 9,300 jobs, consistent with lower crude oil prices and the steep drop in the U.S. rotary rig count. This loss of 9,300 jobs does not align with the much larger announced layoffs and other anecdotal reports of cutbacks in the oil patch, so we expect to see larger job losses reported for mining in the months ahead. The unemployment rate fell from 5.7 percent in January to 5.5 percent in February, and remains on track to end this year at or below 5.0 percent. Over the previous 12 months average hourly earnings for all workers are up a modest 2.0 percent, but consumer price inflation is weak at -0.1 percent over the year ending in January. In other words, the drop in energy prices has been a boon to households despite modest real wage gains. We expect to see more wage inflation through the second half of this year as labor markets tighten up.

Recent Federal Reserve communications have been geared toward setting expectations for interest rate lift-off this year, while at the same time giving the Fed maximum maneuvering room with respect to the exact date of lift-off. As we move through 2015, getting closer to the date of lift-off, the Fed will attempt to gradually focus market expectations. In the March 18 monetary policy announcement, we expect to see further focusing in the form of a modification of forward guidance on interest rates. The relevant passage in the January 28 policy announcement reads, “… the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.” We expect the Fed to remove the word “patient” from the March 18 announcement, effectively initializing a countdown for interest rate lift-off, to commence either on June 17 or September 17. The June and September FOMC meetings each have a press conference scheduled, making them preferable to the Fed by providing a venue that allows them to influence the financial reporting on interest rate lift-off. Currently, the July 28-29 meeting does not have a press conference scheduled. There is no requirement that the first step in interest lift-off be a 25 basis point increase in the fed funds rate. The FOMC may choose to lift-off with a smaller first step, say 12 basis points. This could accomplish three things. A smaller first move could be a compromise offered to those on the FOMC that favor a later date for lift-off. It would allow the news media to report on an event that, by itself, would have little practical consequence for the U.S. economy. It would reinforce expectations for a shallow trajectory for lift-off.

 For a PDF version of the complete Comerica U.S. Monthly with additional commentary, tables, and charts, click here: USEconomicUpdate_03_2015.

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Comerica Economic Weekly

U.S. economic data from first week of March was generally positive and consistent with an ongoing expansion through the first quarter of the year.

The impressive February jobs numbers focused attention back on the Federal Reserve. Despite bad weather, 295,000 payroll jobs were added on net in February. The unemployment rate fell from 5.7 percent in January to 5.5 percent in February, and remains on track to end this year at or below 5.0 percent. Over the previous 12 months, average hourly earnings for all workers are up a modest 2.0 percent, but consumer price inflation is weak at -0.1 percent over the year ending in January. We expect to see more wage inflation through the second half of this year as labor markets tighten up.

The strong February jobs report sets the stage for the Federal Reserve to take yet another step toward monetary policy normalization at the upcoming March 17-18 FOMC meeting. We expect the Fed to modify their forward guidance on interest rates by removing the word “patient” from their analysis. This small change will reinforce market expectations of interest rate lift-off this year. We continue to expect to see a small increase in the fed funds rate announced on June 17, with September 17 a reasonable second choice.

The U.S. international trade gap narrowed in January to $41.8 billion. That sounds good, but it was not a particularly robust report. The trade figures are muddied by the drop in oil prices and by the now-resolved labor issues on California docks. Imports dropped by $9.4 billion for the month. Exports dropped by less, $5.6 billion, so the net balance of trade improved. It is too early to say with conviction, but trade is starting out Q1 as a net drag on GDP.

Initial claims for unemployment insurance increased by 7,000 for the week ending February 28, to hit 320,000. Initial claims have trended up since mid-January, but remain within the favorable range that was established through most of 2014. Continuing claims gained 17,000, to hit 2,421,000 for the week ending February 21, still a good number.

Nonfarm productivity declined at a 2.2 percent annual rate in 2014Q4, reflecting softer GDP growth in the quarter, accompanied by strong job gains. We expect robust job gains to moderate through 2015, bringing productivity growth back into the black. Conversely, unit labor costs increased at a 4.1 percent annual rate in 2014Q4. Over the previous year, unit labor costs are up 2.6 percent on average.

The ISM Manufacturing Index slipped to a still-positive 52.9 in February. The ISM Non-Manufacturing Index increased to a solid 56.9 for the month.

Bad weather is blamed for weaker-than-expected U.S. auto sales in February, chilling to a 16.2 million unit sales rate. Strong job growth supports a March rebound.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 03-06-15.

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February U.S. Employment, January International Trade

Despite Bad Weather, Another Strong Month for Job Growth

  • The February Payroll Employment Survey showed a stronger-than-expected gain of 295,000 payroll jobs.
  • The Unemployment Rate for February fell to 5.5 percent.
  • Average Weekly Hours for all employees were steady at 34.6 hours.
  • Average Hourly Earnings were up by 3 cents in February, gaining 2.0 percent over the previous year.
  • The U.S. International Trade gap narrowed in January to $41.8 billion.

The U.S. jobs machine remains in high gear. Despite bad weather, 295,000 payroll jobs were added on net in February. Job gains were broad-based but there was a decline in the mining sector of 9,300 jobs, consistent with lower crude oil prices and the steep drop in the U.S. rotary rig count. This loss of 9,300 jobs does not align with the much larger announced layoffs and other anecdotal reports of cutbacks in the oil patch, so we expect to see larger job losses reported for mining in the months ahead. The unemployment rate fell from 5.7 percent in January to 5.5 percent in February, and remains on track to end this year at or below 5.0 percent. Over the previous 12 months average hourly earnings for all workers are up a modest 2.0 percent, but consumer price inflation is weak at -0.1 percent over the year ending in January. In other words, the drop in energy prices has been a boon to households despite modest real wage gains. We expect to see more wage inflation through the second half of this year as labor markets tighten up.

Outside of the mining sector, payroll job gains were broad-based. Construction industries added 29,000 jobs in February, after seasonal adjustment, almost all in residential trades. Manufacturing added 8,000 jobs for the month, weighed down by a loss of 5,700 jobs in petroleum and coal products, influenced by striking refinery workers. Wholesale trade employment was up by 11,700 jobs, while retail trade added 32,000 jobs in February. Transportation and warehousing gained 18,500 jobs for the month. Information systems employment increased by 7,000 while financial activities gained 10,000 jobs. Professional and business services employment continued to grow strongly, up by 51,000 jobs in February. Education and healthcare was up smartly, by 54,000 jobs. Leisure and hospitality industries did not relax; they gained a strong 66,000 jobs for the month. Government employment was up by 7,000 in February.

The strong February jobs report sets the stage for the Federal Reserve to take yet another step toward monetary policy normalization at the upcoming March 17-18 FOMC meeting. We expect the Fed to modify their forward guidance on interest rates by removing the word “patient” from their analysis. This small change will reinforce market expectations of interest rate lift-off this year. We continue to expect to see a small increase in the fed funds rate announced on June 17, with September 17 a reasonable second choice.

The U.S. international trade gap narrowed in January to $41.8 billion. That sounds good, but it was not a particularly robust report. The trade figures are muddied by the drop in oil prices and by the now-resolved labor issues on California docks. Imports dropped by $9.4 billion for the month. Exports dropped by less, $5.6 billion, so the net balance of trade improved. It is too early to say with conviction, but trade is starting out Q1 as a net drag on GDP.

Market Reaction: U.S. equity markets opened with losses. The 10-Year T-bond yield is up to 2.24 percent. NYMEX crude is down to $50.42/barrel. Natural gas futures are up to $2.82/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: Employment 03-06-15.

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