Comerica Economic Weekly

A March 15 fed funds rate hike cleared the last hurdle this morning upon the release of a solid February employment report.

The official count of payroll jobs for February showed a net gain of 235,000, consistent with a variety of other strong labor market indicators. The household survey bounced back with 447,000 net new jobs, bringing the unemployment rate back down to 4.7 percent. Average hourly earnings were not as strong as we expected, increasing by 0.2 percent for the month, and 2.8 percent over the previous 12 months. The average workweek was unchanged at 34.4 hours.

Initial claims for unemployment insurance increased by 20,000 for the week ending March 4, to hit 243,000, still a good number. Continuing claims fell by 6,000 for the week ending February 25, to hit 2,058,000.

The U.S. international trade gap widened significantly in January to -$48.5 billion. Imports were up $5.3 billion while exports gained $1.1 billion. This is a negative for Q1 GDP, and may contribute to the continued pattern of weaker-than-expected Q1 GDP results.

Nonfarm labor productivity increased at a 1.3 percent annual rate in 2016Q4. On the one hand the modest gain is a function of strong hiring. On the other hand, it continues a long trend of weak productivity growth that constrains GDP growth.

We expect the Federal Reserve to announce a 25 basis point increase in the fed funds rate range on Wednesday, March 15.  The Fed will also release a new “dot plot” and economic projections on Wednesday, and Janet Yellen will have a press conference. With a fed funds rate hike next week a near certainty, the focus is now on forward guidance. If the Fed hikes on Wednesday they will have begun a pattern of raising interest rates every other meeting, and on meetings with scheduled press conferences.  So analysts will be looking for clues in the policy announcement, in the dot plot and in Janet Yellen’s answers to reporters’ questions about the pacing of interest rate hikes for the remainder of this year. The December 2016 dot plot was consistent with three rate hikes for 2017. We could see the March dot plot shift upward, to be consistent with four rate hikes in 2017. The minutes of the March 14/15 FOMC meeting should prove interesting when they are released on April 5.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: Comerica_Economic_Weekly_ 03102017.

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