U.S. economic data released over the last week of January was generally positive, although 2016Q4 real GDP growth was weaker than expected. International data was also supportive.
The first estimate of 2016Q4 real GDP growth came in at 1.9 percent annualized. The components of GDP were mixed. Consumer spending increased at a moderate 2.5 percent annual rate, supported by a surge in auto sales, but weighed down by warm weather (utilities). Trade was a big drag as imports grew at the strongest rate since the end of 2014. Inventories were a support to GDP growth. Federal defense spending eased.
The Markit Flash U.S. Manufacturing PMI for January was up sharply, while their services PMI was also up. The Eurozone Composite PMI eased slightly to a still-positive 54.3 for January. Japan showed a strong improvement in January.
New orders for durable goods dipped in December by 0.4 percent, weighed down by a large drop in orders for defense aircraft, a very volatile component. Other categories were mixed. Core orders, nondefense capital goods excluding aircraft, increased by 0.8 percent.
The Federal Reserve Bank of Kansas City reported that their January manufacturing survey was positive, as did the Richmond Fed.
Home sales were soft in December. This may just be noise, but it comes as mortgage rates increased, weighing on affordability, along with price gains. Existing home sales dipped by 2.8 percent to a 5.49 million unit rate. New home sales slumped by 10.4 percent to a 536,000 unit rate, the lowest rate since last March.
Initial claims for unemployment insurance increased by 22,000 for the week ending January 21, to hit 259,000, still a very low number. Continuing claims gained 41,000 for the week ending January 14, bouncing off an exceptionally low number the previous week to hit 2,100,000.
Looking ahead, The Conference Board’s Leading Economic Index increased by 0.5 percent in December, the best result since last July. Interest rates, stock prices and consumer expectations were supportive. The coincident and the lagging indexes both increased by 0.3 percent for the month.
The fed funds futures market shows a minimal 4 percent chance of a rate hike on Wednesday. Lets just round that off to zero. Expectations remain focused on June 14 as the date for the next rate hike. We look forward to clarified forward guidance.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: Comerica_Economic_Weekly_ 01272017.