Comerica Economic Weekly

This week’s bumper crop of data was a mixed harvest with generally better news but also some worser[sic] news. The Leading Economic Index for July increased by 0.4 percent, boosted by the surge in residential building permits for the month. The LEI declined in April and June, so the positive reading for July vacates what could have been an ominous trend. Residential real estate indicators are still improving despite the Q2 soft patch and unsettling signals from overseas.  Housing starts for July did give back a little of their strong June gain, declining by 1.1 percent to an annual rate of 746,000 units. But permits for new construction roared ahead, up 6.8 percent in July, to reach an 812,000 unit rate, the most since August 2008. The National Association of Home Builders housing market index for August increased for the fourth consecutive month. Mortgage applications fell for the week ending August 10, showing the fourth consecutive weekly decline in purchase apps, indicating soft numbers for new and existing homes sales in August. Labor market indicators are holding up, suggesting that in the August payroll job numbers we will see more evidence of a step up from the weak Q2 payroll data. Initial claims for unemployment insurance for the week ending August 11 showed a minor gain of 2,000 to hit 366,000. The trend since mid-June still looks good. July payroll job gains were 163,000. In August we could see a number in the range of 120,000 to 140,000. Both the Federal Reserve Bank of New York and the Federal Reserve Bank of Philadelphia reported weak regional manufacturing conditions for August. The Empire State Manufacturing Survey fell into negative territory for the first time this year. The Philly Fed’s Business Outlook Survey showed ongoing weakening conditions with its fourth consecutive negative reading. Despite the weak regional manufacturing reports, U.S. industrial production increased by a solid 0.6 percent in July with gains in manufacturing,
mining, and utilities. The consumer price index was unchanged in July as energy prices fell for the fourth consecutive month. With now four consecutive weak consumer price reports, the headline CPI for July is essentially unchanged from February. Food prices are expected to put increasing pressure on headline CPI. That did not happen in the July CPI report as consumer food prices increased by only 0.1 percent. However, in the July producer price report we do see upstream food prices increasing as a result of the Midwest drought. The producer price index for finished goods increased by 0.3 percent, while the energy component fell by 0.4 percent. Wholesale food prices rose 0.5 percent, the same increase as June. U.S. retail sales increased by a better-than-expected 0.8 percent in July, reversing a three-month decline from April through June. The Q2 slide in retail sales was aided by falling gasoline prices. The July sales gain was the largest monthly increase since February. All major retail sales categories were up in July, indicating a broad-based loosening of the purse strings, as shoppers spent out some of their pent-up demand . Consumer sentiment increased in August, to 73.6, according to the University of Michigan, suggesting good retail sales in August.

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