Comerica Economic Weekly

Comerica TrapezoisShoppers held their ground in July despite three months of weak job creation and the uncertain implications of the Congressional debate on the U.S. debt ceiling.  Retail sales for July gained 0.5 percent after increasing by 0.3 percent in June. Motor vehicle sales gained 0.4 percent, a weaker gain than the month before. Non-auto retail sales increased by 0.5 percent, paced by peak summer driving demand and moderately increasing gasoline prices. The key question for the economy now is, will we get enough job growth to support consumer spending going forward? In early August weekly chain store sales data was lackluster. The U.S. trade gap widened more than expected in June, pushing out to -$53.1 billion, the widest trade gap since October 2008.  Oil prices were not to blame as the trade balance for petroleum shrank by about $1 billion. Monthly volatility in the trade balance is to be expected as oil prices fluctuate and global trade patterns equilibrate as Japan recovers from the earthquake of late March. However, the consequence of a wider than expected trade gap for June is a likely downward revision to Q2 GDP, all else equal. Initial claims for unemployment insurance dropped by 7,000 for the week ending August 6, bringing the level below 400,000 to 395,000. This is a positive development for labor markets, but the improving trend must be maintained in the weeks ahead to be believable. In their policy announcement on Tuesday, the Federal Reserve committed to keep the Fed Funds rate near zero at least through mid-2013. Thus the so called “extended period” has been set in stone for no less than another 22 months. The FOMC acknowledged that economic growth so far this year has been considerably slower than they had expected and that downside risks to the economic outlook have increased. The FOMC did not explicitly identify any other potential policy tools in its announcement, but it did say that it is prepared to employ additional tools as appropriate. Three dissenters broke the recent string of unanimous votes.

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