Comerica Economic Weekly

It was a short week bookended by the Martin Luther King Day holiday and the inauguration of President Trump and Vice President Pence, but there was a good amount of data released, most of which was positive.

Housing starts for December bounced back after a weak November, up 11.3 percent for the month, to a 1.226 million unit rate. The recent volatility has been concentrated on the multifamily side. Multifamily starts fell from a 442,000 rate in October, to 271,000 in November and then normalized to 417,000 in December. December permits were little changed from November, down 0.2 percent to a 1.210 million unit annual rate.

Industrial production jumped by 0.8 percent in December as utility output snapped back from a three-month decline. Manufacturing output increased by 0.2 percent for the month, supported by a 1.8 percent increase in motor vehicle assemblies.

The Philadelphia Fed manufacturing survey for December showed positive and improving conditions for eastern Pennsylvania and southern New Jersey manufacturers. The New York Fed’s manufacturing survey showed a similar positive outcome for New York and northern New Jersey companies.

Initial claims for unemployment insurance fell by 15,000 for the week ending January 14, to hit a very low 234,000. Continuing claims fell by 47,000 for the week ending January 7, to hit a super low 2,046,000.

The Consumer Price Index for December increased by a warm 0.3 percent, as expected. Over the previous 12 months, the headline CPI is up by 2.1 percent. Driving the December gains were energy prices, up by 1.5 percent for the month. Core CPI (less food and energy) gained 0.2 percent in December and is up by 2.2 percent over the previous 12 months.

The European Central Bank left their key interest rates unchanged on Thursday. They reaffirmed their intention to continue asset purchases through the end of this year or beyond.

Federal Reserve chairwoman Janet Yellen delivered a speech at Stanford University on Thursday where she maintained current expectations for about three fed funds rate hikes this year. She concluded her prepared remarks by saying that the course of monetary policy over the next few years will depend on many different factors, of which fiscal policy is just one. It was appropriate that she singled out fiscal policy on the eve of President Trump’s inauguration.

Expectations for the incoming Trump Administration are high and the economic implications are numerous. Generally speaking, we expect to see slightly stronger economic growth, slightly higher inflation, slightly higher interest rates and a slightly stronger value of the dollar because of the net effect of Trump Administration policies. The Fed may raise interest rates more than currently expected if inflation expectations start to unhinge, in what has been labelled the “monetary offset.”

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 01-20-2017.


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