U.S. Data Continues to Improve , Euro-drag Still Looms

  • Third quarter real GDP growth was revised down from 2.5 percent to now 2.0 percent, primarily reflecting weaker than expected inventory growth. Current fourth quarter domestic economic indicators have generally been a little better than expected. The auto sector has been a key source of strength as production and sales rebounded when supply-chain bottlenecks eased. November auto sales extended the uptrend, hitting a 13.6 million unit annual rate. Fourth quarter real GDP growth is expected to be close to 3.1 percent, continuing the pattern of successively stronger quarterly GDP growth, after a very weak start, through 2011.
  • We expect to see an ongoing weak-to-moderate real GDP expansion through 2012, near 2.4 percent for the year. The unemployment rate will continue to fall slowly, approaching 8.1 percent on Election Day 2012, due to a combination of weak-to-moderate job creation and a declining labor force participation rate. Year-over–year inflation rates are now easing.  Oil prices are expected to stabilize through 2012 as growth in global energy demand eases amid plentiful supplies. For the year 2012 we expect consumer prices to increase by 2.2 percent.
  • The U.S. economy added 120,000 payroll jobs in November according to the official BLS employment report, about as expected. The unemployment rate fell significantly from 9.0 percent in October to 8.6 percent, the lowest it has been since March 2009. Ongoing declines in the labor force participation rate combined with strong gains in the household employment survey, up 278,000 in November, brought the unemployment rate down. The disconnect between the weaker payroll survey and the stronger household survey muddies the analysis of the labor market. The majority of labor market indicators are showing more improvement over the past two months than they showed at mid-year 2011.
  • The Federal Reserve has agreed to reduce the cost of dollar swaps with the five other central banks – the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank. Beginning on December 5, pricing for temporary dollar swaps will be reduced by 50 basis points. Also, the six banks have established bilateral swap arrangements that will allow for additional liquidity in each jurisdiction within their currency areas. This is designed to reduce pressures emanating from a deteriorating situation in the Euro-zone. The Federal Reserve statement said that U.S. financial institutions currently do not face difficulty obtaining short-term funding. The Federal Reserve’s action addresses a symptom of the Eurozone crisis but not a fundamental cause which is political and institutional failure.

Click here for the complete December 2011 Comerica Economic Update, with updated charts and an expanded forecast table: USEconomicUpdate1211


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