Comerica Economic Weekly

Economic data released in the third week of June was mixed as the euro-zone crisis, cooler Asia and the threat of the Fiscal Cliff chilled business confidence at the start of summer. The Greek election last weekend put the question of a near-term exit of Greece from the euro-zone to rest, for the time being. However, much heavy lifting remains to be done before the crisis eases, both for Greece and the entire euro-zone. Asia continues to display signs of cooling growth. Indicators now show a contraction in the Chinese manufacturing sector.  The U.S. Fiscal Cliff, expected in early 2013, is generating more analysis. Consistent among public sector and private sector analysis of the Fiscal Cliff is the expectation that it is enough to drive the U.S. into recession in 2013 if nothing is done to change current law.  Unfortunately, the path towards softening the Fiscal Cliff remains uncertain in this election year. The Leading Economic Index for May turned up by 0.3 percent after falling in April. Supporting the index were the housing permits numbers for May, up by 7.9 percent to the strongest level since the series bottomed out in March 2009.  These permits MUST be converted into starts in order to have a positive impact on the economy due to increased incomes of construction workers, increased demand for construction materials and increased GDP due to residential investment. With housing still weak, compared with the last up-cycle, the positive contribution to the overall economy from new residential construction is still somewhat small.  Without the boost from housing permits, the LEI could have registered its second monthly decline, and that would have sent a much different cautionary signal. Existing home sales declined in May, down 1.5 percent, increasing the expectation for a weak new homes number too, and that would dampen builders’ enthusiasm. While existing home sales fell slightly in May, the median sales price of an existing home continued to improve, now up 7.9 percent from a year ago. Initial claims for unemployment insurance ticked down by 2,000 for the week ending June 9, to hit 387,000. The Philadelphia Fed’s manufacturing survey for June shows that current manufacturing conditions have deteriorated in eastern Pennsylvania and southern New Jersey. Residential construction indicators went both ways in May, with starts falling as permits increased. Total housing starts decreased by 4.8 percent, down to a 708,000 unit annual pace. The job openings rate for April ticked down to 2.5 percent with fewer openings in manufacturing, business and professional services and government. The separations rate was unchanged at 3.1 percent. So we can say that through April, slower hiring was not matched by an increase in firing.

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