U.S. economic data for the week was positive and consistent with an ongoing moderate economic expansion through the fourth quarter of 2016.
The biggest surprise of the week came from the National Federation of Independent Business. Their Small Business Confidence Survey showed a surge in optimism in December, to 105.8, the strongest reading since December 2004. If the surge in small business optimism is maintained, we could see stronger hiring, inventory spending and capital spending in 2017 as a result.
Initial claims for unemployment insurance increased by 10,000 for the week ending January 7, to hit 247,000, still a very low number. Continuing claims for the week ending December 31 fell by 29,000 to reach 2,087,000, also a very low number.
The Job Openings and Labor Turnover Survey for November showed stable and positive labor market conditions. The jobs openings rate ticked up to 3.7 percent for the month. The hiring rate was unchanged at 3.6 percent . The separations rate ticked up to 3.5 percent.
Retail sales for December increased by 0.6 percent, supported by strong auto sales and rising gasoline prices. For the month, unit auto sales surged to an 18.4 million unit rate. The dollar value of retail auto sales increased by 2.4 percent in December. Gasoline increased from an average of $2.18 per gallon for regular unleaded in November to $2.26 in December, boosting retail sales at gasoline stations by 2.0 percent for the month. Other components of retail sales were mixed to down.
The producer price index for final demand increased by 0.3 percent in December, about as expected. Gains over the last 12 months continue to trend up. The PPI for final demand is now up 1.6 percent over the last 12 months.
Manufacturing and trade inventories were up 0.7 percent in November. The nominal gain was ahead of the PPI, suggesting real inventory accumulation in November. We are expecting to see an increase in the rate of real inventory growth in 2016Q4 that will support ongoing moderate GDP growth.
Mortgage applications rose in early January as mortgage rates eased. Both purchase and refi apps increased. According to the Mortgage Bankers Association, the 30-year fixed rate mortgage eased to 4.32 percent as of January 6, motivating increased refi activity.
The University of Michigan’s Consumer Sentiment Index eased slightly in mid-January to 98.1, after surging in December.
We continue to expect the Federal Reserve to keep key short-term interest rates unchanged at the upcoming Federal Open Market Committee meeting over January 31/February 1. So does the fed funds futures market, which shows the implied probability of a rate hike on Feb. 1 of just two percent. The futures market remains focused on June 14 for the date of the next fed rate hike. Stronger inflation data could move that schedule up.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 01-13-2017.