Comerica Economic Weekly

U.S. economic data from the end of July/early August was below potential but not bad enough to call in the cavalry. The U.S. economy added 163,000 new payroll jobs on net in July, exceeding consensus expectations. That’s the good news. The bad news came from the separate household survey of employment, which determined that the unemployment rate increased to 8.3 percent for the month. This ambiguous combination of better payroll jobs and an increasing unemployment rate does not resolve the debate over future Federal Reserve policy actions.  The Fed kept the QE gun in the holster on August 1 but marginally increased expectations that they would announce new policy measures soon. There are two upcoming opportunities for new policy announcements from the Fed. The first is the Federal Reserve Economic Policy Symposium in Jackson Hole, Wyoming at the end of August. After that comes the regularly scheduled FOMC meeting on September 17 and 18. At the September meeting the Fed will have the benefit of another month’s worth of employment data (the August jobs report will be released on Friday, September 7). The Fed will likely maintain “watchful waiting” through Jackson Hole, setting up the August jobs numbers as another trip wire for new policy action in mid-September. The ISM non-manufacturing index for July increased slightly to 52.6, indicating ongoing expansion in services and construction, driven by stronger prices and growing inventories. However, the employment sub-index fell to 49.3 for July, indicating cooler hiring. The ISM manufacturing index for July was essentially unchanged at 49.8, just below the break-even reading of 50.0 for the second month in a row. Auto sales for July ticked down to a 14.1 million unit annual sales rate, from an upwardly revised 14.4 million units in June. Through the first 7 months of 2012, auto sales have been hovering between 14.0 and 14.5 million units. Consumer confidence ticked up in July to 65.9 according to The Conference Board. This is still a weak number indicating a cautious stance on the part of shoppers. Construction spending increased by 0.4 percent in June, boosted by gains in private residential. House prices continued to increase in May according to the Case-Shiller 20-City Composite House Price Index.  Eighteen out of 20 cities showed a monthly gain in May. Personal income increased by 0.5 percent in June. The personal consumption expenditure price index was up 0.1 percent after falling in May. After inflation and taxes, real disposable income gained 0.3 percent in June. Real consumer spending declined by 0.1 percent as the savings rate increased.

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