Comerica Economic Weekly

Mixed data this week suggests that the Fed will not begin to back off the QE accelerator at their upcoming FOMC meeting this Tuesday and Wednesday

Total retail sales increased by 0.6 percent in May, suggesting that the American consumer may be a little more resilient than previously thought. Rising house prices and ultra-low mortgage rates are allowing households to build equity in the homes at an aggressive clip. According to the Federal Reserve’s Flow of Funds data, owners’ equity in real estate was up nearly 41 percent in March versus a year ago. Also, the S&P 500 stock index was up 22 percent in May from a year ago. Positive feedback loops within the U.S. economy will continue to drive the domestic economy forward, even as the rest of the world limps through mid-2013. Fiscal tightening will still be a drag for the remainder of this year, and we could see some dialing back of monetary policy if the Fed decides to start “calibrating” QE3 later this year. But a more resilient U.S. consumer will smooth the transition from the last five years of expansive policy to the next phase, which we might call “The Great Policy Unwind,” beginning in 2013 and extending through 2015.

Total business inventories gained a moderate 0.3 percent in May as retailers stocked up. An elevation in the overall inventory/sale ratio to the upper end of its normal range over the last 10 years suggests that overall inventory accumulation will be cautious through mid-2013. Initial claims for unemployment insurance for the week ending June 8 declined by 12,000 to hit 334,000. UI claims have been somewhat erratic this year but the overall trend looks good.

Producer prices for May came in hotter than expected with the finished goods PPI gaining 0.5 percent, well above the consensus guess of 0.1 percent. The price index for finished energy goods was up 1.3 percent for the month, reversing a two-month drop. Natural gas prices bouncing off the bottom helped to push the energy index up. Finished food prices were up 0.6 percent as egg prices surged 42 percent in a month. The core PPI index (less food and energy) was up just 0.1 percent for the month, and is up 1.7 percent over the past 12 months. 

Total industrial production for May was unchanged, after declining by 0.4 percent in April.  Manufacturing production increased by 0.1 percent in May, but has dipped in three out of the last five months. The big drag on IP for May was in the utilities sector where output declined by 1.8 percent. Overall capacity utilization dipped slightly to 77.6 percent in May. The University of Michigan’s Consumer Sentiment Index dipped in May to 82.7 percent.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here:CMAEconWeekly061413 .

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