Comerica Economic Weekly

U.S. economic data at the start of the second quarter are consistent with an improving economy. Conditions in Europe also appear to be improving, evidenced by the strong demand for the first post-crisis issuance of Greek sovereign debt. However, China spooked global financial markets late this week after a poorly-subscribed bond sale raised concerns about slowing economic growth there.

Labor market indicators for the U.S. appear to be back on track after a weak December and January. The Job Opening and Labor Turnover Survey (JOLTS) for February showed an increase in the job openings rate for the month, consistent with the solid payroll job gain of 197,000 for that month.

Initial claims for unemployment insurance for the week ending April 5 decreased by 32,000 to hit an even 300,000. This is the lowest level of initial claims reported since May 2007 and it is on par with the lows seen in the previous expansion cycle when the unemployment rate was below 5 percent. Long story short, initial claims say that labor markets are normalizing.

Business confidence is improving. The National Federation of Independent Business’s Small Business Optimism Index increased in March, reversing the February decline. The improvement in small business optimism coincides with a strong 26 percent increase in commercial and industrial loans for all banks in February, as reported by the Federal Reserve.

Consumer sentiment is also improving. The University of Michigan’s Consumer Sentiment Index increased in early April to 82.6. Other measures of consumer confidence are also improving.

Producer prices for final demand jumped in March according to the Bureau of Labor Statistics. The new headline PPI series increased by 0.5 percent for the month. This unexpected gain reflects methodology changes by the BLS that have added more volatile components to their headline PPI measure. At this point, the surge in PPI for final demand does not appear to represent a clear inflationary threat. We will keep monitoring this series to see if it settles down.

The minutes for the Federal Open Market Committee meeting of March 18/19 show a repeated concern about weak inflation. The minutes have a “dovish” quality that suggests that the FOMC may keep the eventual increases in the fed funds rate at a lower trajectory than some might expect. There was broad agreement within the FOMC that the forward guidance linking the fed funds rate to an unemployment rate threshold of 6.5 percent needed to be revised. The minutes also suggest that the FOMC will continue to taper their asset purchase program in “measured steps” unless conditions change significantly.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 04-11-14.

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