Comerica Economic Weekly

Labor market data for February was better than expected. The official Bureau of Labor Statistics report showed a solid gain of 236,000 payroll jobs for the month.   Job growth was broad-based, however, the government sector was a drain, subtracting 10,000 jobs from the total as state and local government employment fell. One month does not make a recovery, but the magnitude and distribution of job gains in February looks very healthy. Other good news….the average workweek increased a tenth to 34.5 hours, and average hourly earnings increased by 0.2 percent. Not only were more workers hired but they also worked longer hours and got paid more; good news for production and for income. The unemployment rate fell from 7.9 percent to 7.7 percent which is the lowest it has been since December 2008.

The solid labor report for February is consistent with other data points that show that the economy is maintaining its momentum even as fiscal tightening increases. Auto sales ticked up to a 15.3 million unit pace in February, breaking the declining trend since the November post-Sandy surge. Housing indicators all continue to point north, with ample upside potential remaining. Oil prices have fallen since mid-February. U.S. stock indexes have crested pre-recession highs. If we can keep the labor market momentum up for the next few critical months, as fiscal tightening continues, many other good things will happen. Solid hiring is the antidote to fiscal tightening. We got a dose of the antidote in February. More is needed. The U.S. international trade gap widened in January to -$44.4 billion. The monthly trade data has been lurching about in recent months. This random behavior becomes noticeable in a low growth economy. We just saw that in the 2012Q4 GDP data where an initial small negative reading on fourth quarter real GDP growth was revised to a small positive, in large part because of a narrowing of the trade gap in December. Merchandise exports to the Euro Area remain weak, still declining on a year-over-year basis. Pacific Rim trade looks more promising. Exports to Pacific Rim countries have been flat over most of 2011 and 2012, but recent data is showing an improving trend. Right now trade looks like it will be a small drag on 2013Q1 real GDP growth.

The ISM Non-Manufacturing Index for February  increased to 56.0 percent, indicating ongoing expansion in the service sector. Anecdotal comments were positive. Thirteen industries reported improving conditions while five reported contraction for the month.

The Federal Reserve’s Beige Book indicated that regional economic activity expanded at a modest to moderate pace early this year. Notable was cooler commentary about the Boston and Chicago districts, which said that economic activity expanded slowly. Automobile sales were strong across districts, but some reported that non-auto retail sales were slow. Residential real estate markets strengthened across much of the country. Commercial real estate activity was mixed or improving slightly in most districts. Loan demand was stable to slightly higher in nearly all districts.

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