Plodding Through Mid-2013, More Push, More Pull

  • Themes for the U.S. economy have not changed significantly over the last month.  Monetary policy remains highly expansive, pushing on financial markets, while fiscal policy remains contractionary, pulling on federal government spending. Housing has emerged as a driver for the domestic economy and positive feedback loops are engaging between housing markets, household wealth, consumer spending and job creation. Global economic conditions are marred by a weak Europe. The Chinese economy appears to be cooling to a still enviable 7-8 percent real GDP growth range. Japan is showing signs of life, responding to the very aggressive fiscal and monetary policies promoted by Prime Minister Abe.
  • Within the web of pushes and pulls from domestic and international sources, U.S. labor markets are still adding jobs at a restrained rate, now nearly four years into the expansion.  May’s official payroll job increase of 175,000 was greeted with a sigh of relief because expectations sank after a weak ADP report showed that just 135,000 private sector jobs were added for the month according to that survey. The unemployment rate in May ticked up to 7.6 percent as the labor force registered an outsized gain of 420,000 workers for the month. 
  • Manufacturing indicators have generally cooled in the second quarter. The ISM Manufacturing Index has now dipped to 49.0 as of May, the first dip below 50 since July 2009. Industrial production retreated by 0.5 percent in April. Cutbacks in federal spending are weighing on contractors. Auto sales for May climbed to a 15.3 million unit pace, but when viewed from a broader perspective they remain range bound, still below the November 2012 peak of 15.5 million units. 
  • We expect to see only-moderate real GDP growth in the vicinity of 2.0 percent (annualized rate) for the middle two quarters of 2013.  Job growth is expected to remain uninspired near 180,000 jobs per month and the unemployment rate is expected to recede slowly. In addition to the still-growing drag from federal spending cuts, many businesses are struggling to come to terms with the requirements of the Affordable Healthcare Act.  The law, which is expected to fill 17,000 pages when finalized, represents a major near-term challenge particularly for small-to-medium sized businesses. Businesses that currently employ near 50 workers face a vexing set of issues  that may provide disincentives to hire, and worse, may provide incentives to scale down or substitute full-time employees for part-timers. Add in the possibility of tax reform and businesses continue to face a highly uncertain regulatory environment that will be a drag on job creation for the remainder of the year.

US Monthly Economic Update_ 06122013

For a PDF version of this Comerica U.S. Monthly with tables and charts, click here USEconomicUpdate0613.

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