Comerica Economic Weekly

It was a fairly light week for U.S. economic data, with nothing to counter expectations for improving economic performance in the current second quarter. In her testimony this week before the Joint Economic Committee of Congress, Federal Open Market Committee Chairwoman Janet Yellen delivered a reassuring message with no surprises. She acknowledged the pause in Q1 real GDP growth, but described the pause as “mostly reflecting transitory factors.” She did strike a cautionary note on housing activity, saying that readings have been disappointing and that the sector “bears watching.”

Nonfarm productivity declined at a 1.7 percent annual rate in Q1, as GDP registered a dismal 0.1 percent growth rate. The U.S. international trade gap for March narrowed, but by less than expected, and that implies that Q1 real GDP growth will be revised downward, to around -0.5 percent, when the second estimate of Q1 GDP is released on May 29. A downward revision to Q1 GDP implies, in turn, a downward revision to the Q1 productivity numbers, and a symmetrical upward revision to Q1 unit labor costs (ULC). As reported, ULC for Q1 increased by an eye-catching 4.2 percent. We do not believe that this signals imminent inflationary pressure because the Q1 drop in productivity and the related increase in ULC will not be sustained in subsequent quarters. On a year-over-year basis, Q1 productivity is still up 1.4 percent and ULC is up a meager 0.9 percent.

The ISM Nonmanufacturing Index for April improved to 55.2. Seven out of ten ISM-NMF sub-indexes improved in April. Anecdotal comments were generally positive.

The U.S. international trade gap narrowed in March to -$40.4 billion as both exports and imports increased for the month. The improvement in the trade gap was less than the estimate used by the BEA to calculate Q1 GDP, so that points to a downward revision to Q1 real GDP growth. Exports increased by $3.9 billion in March, while imports increased by $2.5 billion.

Initial claims for unemployment insurance for the week ending May 3 decreased by 26,000 to hit a level of 319,000. Continuing claims for unemployment insurance for the week ending April 26 fell by 76,000 to hit 2,685,000. Now that the Easter seasonals are behind us, these series become more meaningful.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 05-09-14.

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