Comerica Economic Weekly

U.S. data releases this week were capped by a weaker-then-expected payroll employment gain in May, according to the BLS. However, other labor market indicators were solid.

May payrolls expanded by 138,000 according to the BLS. The pace of U.S. job growth appears to be easing, and this is what we have been expecting to see as the economic expansion matures. Despite weaker-than-expected payroll job growth for May, the unemployment rate fell to 4.3 percent. This was due to a combination of fluky inputs to the unemployment rate calculation. Average hourly earnings were up by 0.2 percent in May and by 2.5 percent over the previous 12 months. The average workweek was unchanged at 34.4 hours.

In contrast to the BLS employment report, the ADP employment report for May showed a strong gain of 253,000 private sector jobs for the month.

Also, unemployment insurance claims remain at very low levels. Initial claims for the week ending May 27 increased by 13,000, to hit 248,000. Continuing claims for the week ending May 20 fell by 9,000, to hit 1,915,000.

Nominal personal income increased by 0.4 percent in April, about as expected. After adjusting for inflation and taxes, real disposable income increased by a moderate 0.2 percent for the month. Nominal consumer spending increased by 0.4 percent in April, supported by higher energy prices and a modest increase in auto sales for April. After adjusting for inflation, real consumer spending increased by 0.2 percent for the month, and is consistent with a near-3 percent annualized rate of growth for Q2 real consumer spending.

According to the Case-Shiller U.S. National Home Price Index, U.S. home prices were up by 0.3 percent in March over February, after seasonal adjustment, and were up 5.8 percent over the previous 12 months. Eighteen of the 20 cities in the Case-Shiller 20-City Index showed monthly house price gains in March.

The Conference Board’s Consumer Confidence Index eased from a high 119.4 in April, to a still high 117.9 in May.

Vehicle sales for May dipped from a 16.9 million unit sales rate in April to 16.7, still a good sales pace. We expect vehicle sales to gradually ease off the record setting pace of last year. On the one hand, good income growth and house price appreciation, combined with strong consumer confidence will continue to support sales this year. On the other hand, fleet sales to rental agencies are expected to ease and sub-prime credit conditions could tighten.

Manufacturing conditions nationwide remain positive and improving. The Institute of Supply Management’s Non-Manufacturing Index inched up from 54.8 in April to 54.9 in May. The new orders, production and employment sub-indexes were all in positive territory.

According to the Federal Reserve Bank of Dallas, Texas manufacturing conditions are improving at a fast pace. This is consistent with the climbing rig count.

The U.S. international trade gap widened in June by $2.3 billion, to -$47.6 billion. Exports eased slightly while imports increased. The April inflation-adjusted trade gap in goods is a little wider than the Q1 average, so early in Q2 trade is shaping up to be a modest drag on GDP growth for the quarter.

Construction spending in April dipped by 1.4 percent, consistent with the decline in housing starts for the month. Spending on private residential construction eased by 0.7 percent. Spending on private non-residential projects was down by 0.6 percent. Spending on public construction projects dropped by 3.7 percent.

Something to look out for in the months ahead is the Federal Reserve’s reaction to lower-than-expected inflation. Oversupply is keeping oil and natural gas prices down. That could potentially cause the Fed to slow the pace of interest rate increases next year.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here:  Comerica_Economic_Weekly_ 06022017.


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