Comerica Economic Weekly

Comerica TrapezoisThis week’s data did little to dispel the ominous sense of deja’ vu that the economy is once again teetering on the brink of recession. The full basket of data does not confirm recession at this time but does support the view that the downside risks to growth are elevated and the subjective odds of the U.S. slipping into recession before the end of 2012 are in the neighborhood of 45 percent…not a very nice neighborhood. Our baseline forecast still calls for an ongoing weak-to-moderate expansion, but we remain vigilant for developing signs of weakness. Inflation data for July got whipsawed by a surge in consumer energy costs as gasoline prices rebounded on a seasonally adjusted basis. The headline consumer price index for July gained 0.5 percent after falling by 0.3 percent in June. Gasoline prices were up 4.3 percent for the month, pulling the overall energy index up by 2.8 percent. The core CPI gained a more sedate 0.2 percent for the month.  Producer prices were generally calmer. The PPI for finished goods for July increased by 0.2 percent. The energy component of PPI fell for the month, pointing to lower CPI energy inflation in August. With lingering soft demand and oil prices staying in the 80’s inflation will remain in the moderate zone as we round out the third quarter. The Conference Board’s Leading Economic index paints a somewhat rosy view of the economy, gaining 0.5 percent in July, its third consecutive moderate-to-strong increase. Financial markets have more recently soured and initial claims increased in the last data point casting some doubt on the believability of the Leading Index at this point in time. Existing home sales dipped by 3.5 percent in July to an annual rate of 4.76 million units, the weakest sales pace so far this year.  The median sales price of an existing home dipped in July and is down 4.4 percent from a year ago. Initial claims for unemployment insurance ticked back up, unable to fall significantly below the 400,000 mark. Initial claims gained 9,000 for the week ending August 13 to hit 408,000. This puts a damper on expectations for payroll job growth in August. I expect to see another month of only-tepid gains, in the neighborhood of 100,000 net new jobs for August. Industrial production rebounded in July, gaining 0.9 percent, supplying a counterbalance to the drag from recent financial market volatility. The key concern for manufacturing output is the sustainability of the July surge in vehicle production. Vehicle sales increased to a 12.2 million unit pace in July and still have much upside potential given significant pent-up demand. But consumer confidence took a hit in August as the University of Michigan Consumer Sentiment Index plunged to a recessionary 54.9, well down from a recent high of 77.5 from last February. The pace of new residential construction eased in July as total housing starts pulled back from the 613,000 unit mini-surge in June, to a 604,000 unit pace in July.

 

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