Comerica Economic Weekly

U.S. economic data were mixed this week, but remain consistent with an improvement in Q2 GDP growth after an anemic Q1 reading of 0.1 percent (that looks to be revised down to a small negative). Inflation metrics warmed up in April. The PPI for final demand gained a strong 0.6 percent in April after increasing by 0.5 percent in March. Wholesale food prices gained a noticeable 2.7 percent for the month, pushed up by drought conditions in California, now for the third consecutive year in some areas. Shipping bottlenecks left over from the severe winter, combined with bottlenecks in rail transport, have resulted in very high demand for trucking services. This put upward pressure on the prices of many goods, both at the wholesale level and at the retail level.

The Consumer Price Index for April was up more than expected, by 0.3 percent. Food prices were up 0.4 percent for the third month in a row. Increasing house prices and rents are having an effect. The index for shelter was up 0.2 percent in April. The core CPI (less food and energy) was up 0.2 percent, and is now up 1.8 percent on a year-over-year basis. If we add to the picture rapidly declining unemployment rates in some areas, upside pressure on average hourly earnings and weak productivity growth, we start to see some potential for stronger inflation as the U.S. economy accelerates this year.

Industrial production in April dipped by 0.6 percent as utility output fell by 5.3 percent, clearly weather-related. However, most manufacturing industries were weak as well. Overall manufacturing declined by 0.4 percent in April, after solid gains in February and March.

The Empire State Manufacturing Survey for May showed a strong uptick in manufacturing conditions for the New York region. The Philadelphia Fed’s Business Outlook Survey ticked down slightly in May, but remained firmly in positive territory.

New claims for unemployment insurance fell by 24,000 to hit a level of 297,000, the lowest level since May 2007. Continuing claims fell by 9,000 to hit 2,667,000 for the week ending May 3.

Residential construction activity picked up in April. Housing starts increased by 13.2 percent for the month, to an annual unit rate of 1,072,000. Permits increased by 8.0 percent, to a 1,080,000 unit rate.

Retail sales for April gained just 0.1 percent, despite reasonably solid performances from most major categories. The big drag on headline sales came from electronics and appliance stores which blew a fuse, declining by 2.3 percent in April. We expect to see solid consumer spending numbers this spring and summer.

The National Federation of Independent Business’s Small Business Optimism Index surged in April, up to 95.2, its strongest reading since October 2007.

Total business inventories were up by a modest 0.4 percent in March, consistent with the weaker Q1 inventory numbers in the GDP report.

The University of Michigan’s Consumer Sentiment Index ticked down to 81.8 in early May. We expect consumer sentiment to maintain an upward trend this year.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 05-16-14.

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