Comerica Economic Weekly

It was another good week for U.S. economic data, ending on a high note with a solid jobs number for January. Job growth in January showed a robust gain of 243,000 payroll jobs for the month, well above the consensus expectations that were sagging going into this morning’s data release. The unemployment rate stepped down from 8.5 to 8.3 percent. This continues the trend of positive economic data for the U.S that began in the fourth quarter of 2011 and now has extended into the first quarter of 2012. Payroll job growth was broad-based. Of note is the strong 50,000 job gain in manufacturing and the 21,000 net new jobs in construction.  Beyond the January numbers, revisions to historical data were positive, adding to the total U.S. job count. The average workweek for all employees was unchanged in January, but the manufacturing workweek increased by 0.3 hours and factory overtime increased by 0.1 hours, consistent with positive news from the auto sector. All in all, a solid jobs report that is supportive of ongoing income and spending growth and improvement in business and consumer sentiment. Already there is speculation about how long the Federal Reserve can hold onto its promise to keep interest rates exceptionally low through the end of 2014. A lot can happen over the next three years, including better than expected labor market conditions. Downside risks remain, particularly from stress in the Euro-zone, but this side of the Atlantic looks better for now. January auto sales accelerated to a 14.1 million unit pace, up from December’s 13.5 million units. With more jobs and more new cars on the road, the economy is feeling some lift. The ISM manufacturing survey for January showed an increase in overall manufacturing activity at the start of 2012 as the manufacturing PMI increased to 54.1 percent.  A boost came from strong pricing, a sizeable backlog of orders and inventory gains. Fourth quarter 2011 real GDP growth of 2.8 percent was driven by strong inventory accumulation and that trend may continue into early 2012Q1.  The ISM non-manufacturing index also increased in January, to 56.8 percent. Construction spending for the month of December increased by 1.5 percent as spending on private residential projects gained 2.1 percent.  This is consistent with the moderately improving housing starts data at year-end 2011. Incomes were up in December but spending was not. Total personal income increased by a solid 0.5 percent, supported by a 0.4 percent increase in wages and salaries.  Adding to the December gain was rental income which increased by 1.9 percent, the latest in a string of strong increases. Falling apartment vacancy rates are supporting rent increases which are showing up in the personal income accounts. Even though consumers felt a little more flush with cash, they did not spend it. Total consumer spending for December was unchanged from November. Inflation readings remain weak for the month. The personal consumption expenditure price index increased by just 0.1 percent in December.

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