Comerica Economic Weekly

Payroll employment expanded by 113,000 jobs in January, below expectations. This follows on the heels of a weak December report, when only 75,000 jobs were added. The unemployment rate fell to 6.6 percent in January, just above the Federal Reserve’s 6.5 percent “threshold” for raising the fed funds rate. At this point, the Fed’s concept of an unemployment rate threshold has no value as a forward guidance tool. We expect the Fed to maintain its near-zero fed funds rate policy well into 2015. The next meeting of the FOMC is March 18/19. So they will also have the February employment data, due out March 7, as well as other data, to look at before they deliberate on additional tapering of QE. As long as the February data is consistent with moderate expansion, the FOMC will continue to taper QE in $10 billion increments. Consistently soft data between now and mid-March could cause the Fed to take a breather from tapering, waiting for firmer data by the end of April. We expect monthly payroll job growth to reset to about 180,000-190,000 per month this year.

The January ISM Manufacturing Index fell to a still-positive 51.3. Comments were generally positive, but included references to the weather and to the lagged effects of the federal government shutdown. The employment sub-index remained positive at 52.3. The ISM Non-Manufacturing Index improved to 54.0. Anecdotal comments were positive. The employment sub-index for the service sector increased to 56.4.

Auto sales for January froze up, falling to a 15.2 million unit annual rate, well off the 16.4 million unit bounce-back rate of November. Given the terrible weather in much of the country, we will take January auto sales as a win and expect a rebound in February and March.

Construction spending for December barely ticked up by 0.1 percent. Private residential construction spending increased by 2.6 percent. Private non-res decreased by 0.7 percent with a decline in the manufacturing sector. Public construction dipped by 2.3 percent.

The Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS) showed loosening credit standards and increasing demand for commercial and industrial loans through January. This is a positive for business investment in 2014 and is consistent with moderately improving business confidence surveys.

The U.S. international trade gap widened more than expected to -$38.7 billion in December. The wider-than-expected trade gap for December implies a negative revision to 2013Q4 GDP. If all other GDP components remain the same, Q4 GDP annualized growth will be revised down from 3.2 percent, by about 0.4 percent, to 2.8 percent. 

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly0207114.

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