Comerica Economic Weekly

The perception of uncertainty in the U.S. and global economies appears to have increased. That is not to say actual uncertainty (whatever that is), as measured by the Economic Policy Uncertainty index, has increased. In fact, according to the monthly Economic Policy Uncertainty Index, uncertainty has been on a decreasing trend since last October when the index spiked at the time of the federal government shut-down. The daily uncertainty index does show a local spike around March 9, then it receded through March 14. The political and military events in the Ukraine have added to business uncertainty here in the U.S., but only moderately.

The combination of the October federal government shutdown, bad weather from December through early March, trouble in some small emerging markets  and the volatile geopolitical situation in the Ukraine appears to have heightened the perception of uncertainty.  U.S. stock market indexes declined through this week. The heightened perception of uncertainty, let’s call that twitchiness, obscures some recent positive metrics.

According to the Federal Reserve, the net worth of households and non-profits increased by 14 percent($10.6 trillion) in 2013, hitting a level of $80.7 trillion, surpassing the pre-recession peak. As wealth accumulates, households feel more comfortable satisfying demand and utilizing credit (a positive wealth effect). This is a very powerful and broad-based support for consumer spending.

Also, according to the Federal Reserve, commercial and industrial bank loans increased strongly in January and February. That is a positive leading indicator for business investment and job creation.

Retail sales increased in February by 0.3 percent reversing a two-month decline. Gains were spread across most major categories.

Unemployment insurance claims for the week ending March 8 fell by 9,000 to hit a level of 315,000. Continuing claims for the week ending March 1 declined by 48,000 to hit 2,855,000. On a related note, Senate negotiators have reached an agreement to renew long-tem unemployment benefits. A vote in the Senate could come in late March. Passage in the House is uncertain.

The Producer Price index for final demand declined by 0.1 percent in February. Over the last 12 months the final demand PPI is up 0.9 percent. The goods component increased in February, driven by gains in food and energy prices. The services component dipped as prices for wholesalers and retailers eased.

The National Federation of Independent Business’s Small Business Optimism index dipped February. Employment plans were still positive, but weaker than they were in January. Capital spending plans remain somewhat muted in this index despite the gain in lending reported by the Federal Reserve.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly031414.

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