Comerica Economic Weekly

The advance estimate of 2013Q2 GDP is a good news/bad news story. The good news was that real GDP growth for the second quarter exceeded gloomy expectations at 1.7 percent. The bad news is that GDP growth in the four quarters from 2012Q2 through 2013Q1 was revised downward.  Fortunately, the last two quarters are showing mild acceleration from the very weak end of 2012, with real GDP growth in 2013Q1 increasing to 1.1 percent and 2013Q2 increasing further to 1.7 percent, despite the drag from fiscal tightening. Federal discretionary spending continued to contract, down at a 1.5 percent annual rate, its third consecutive decline.

The ISM-Manufacturing Index climbed from a barely positive 50.9 in June to a solidly expansive 55.4 in July. Most index components are in expansion territory, led by production, new orders, imports and employment. Housing-related industries did well.

Construction spending for June slipped by 0.6 percent. Private residential spending stalled in June, consistent with the recent plateau visible in housing starts and permits. Private nonresidential construction fell by 0.9 percent, with most major categories down. One exception was power plant construction spending, which maintained its increasing trend in June. Total public construction spending fell by 1.1 percent for the month, consistent with the wind down in fiscal stimulus spending and the federal budget sequester.

Initial claims for unemployment insurance fell by 19,000 for the week ending July 27, to hit 326,000. This is the lowest weekly tally since January 2008. Initial claims data have been fairly volatile this year. This summer, in particular, seasonality stemming from the usual summer auto plant closures appears to have been a factor.  That effect should be diminishing.

The Federal Reserve’s Federal Open Market Committee reaffirmed its highly accommodative policy and provided no additional information about the timing of the eventual unwind of its asset purchase program known as QE3.  The Fed will continue to purchase $40 billion worth of agency MBS and $45 billion of longer-term Treasury bonds per month.  The Fed also made no changes to its fed funds rate policy. Given the Fed’s current language, it appears that the funds rate will not be lifted until sometime in 2015.

Auto sales for July slipped to a 15.7 million unit pace. This maintains most of the gains from the jump in sales in June to 16.0.

The official July employment report confounded expectations in both directions. The payroll job gain of 162,000 for the month was weaker than expected given solid Q2 job gains and a strong July ADP employment report. However, the unemployment rate came down more than expected, dropping two tenths to hit 7.4 percent. Nominal personal income increased by 0.3 percent in June, boosted by ongoing gains in interest and dividend income. After adjusting for inflation and taxes, real disposable personal income slipped by 0.1 percent in June. Nominal spending was up 0.5 percent.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly080213.

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