Comerica Economic Weekly

U.S. data from the middle of January reminds us that there is still uncertainty associated with economic metrics, even within the context of a generally favorable U.S. outlook. The Swiss National Bank added to global uncertainty as they released their increasingly expensive peg to the euro. Swiss watch makers were alarmed.

Crude oil prices look like they have at least temporarily stabilized in mid-January, with WTI settling around $47-48 per barrel. The national average price for regular unleaded gasoline is down to $2.08 per gallon according to AAA.

The Producer Price Index for final demand fell by 0.3 percent in December due to the pull from energy prices. It is now up by 1.1 percent over the previous 12 months. Removing food and energy, the core PPI increased by 0.1 percent in December, so we are still seeing weak, but positive price gains in the broader economy. The Consumer Price Index tells a similar story. December CPI was down 0.4 percent, and core CPI was unchanged.

Labor data was inconclusive. The Jobs Openings and Labor Turnover Survey for November showed an increase in the rate of job openings. However, initial claims for unemployment insurance increased by 19,000 for the week ending January 10, to hit 316,000. Seasonal factors are difficult to account for this time of year, so there may be some noise in the data.

Consumer sentiment continues to improve. The University of Michigan Consumer Sentiment Index for January surged to 98.2, getting back to a more normal, pre-recession level. However, retail sales data from earlier this week disappointed. Retail sales for December fell by 0.9 percent. We knew gasoline sales would ease, reflecting lower prices. And we knew that unit auto sales for the month were down slightly. However, electronics and appliance store sales were also weak, as were sales at building materials stores, general merchandise stores and sporting good stores.

Industry indicators for the week were likewise mixed. The National Federation of Independent Business’s Small Business Optimism Index also regained pre-recession form, increasing to 100.4 in December. Meanwhile, industrial production eased by 0.1 percent in December, due to a reset in utility output after surging in November. Business inventories increased by a moderate 0.2 percent in November. We expect to see a little drag from inventories on 2014Q4 GDP when the first estimate is released at the end of this month.

The Federal Reserve’s Beige Book said that most regions in the U.S. showed modest-to-moderate growth in the second half of the fourth quarter. The Empire State Manufacturing Survey said that manufacturing conditions in New York and northern New Jersey improved in December. Just down interstate 95, the Philadelphia Fed survey eased to a still-positive reading in December.

U.S. economic data from year-end 2014 continues to impress, setting the stage for solid momentum in 2015.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 01-16-15.

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January 2015, Comerica U.S. Economic Update

U.S. Economy Set for Growth in 2015, Shifting Regional Patterns

U.S. economic data at year-end 2014 was strong and we expect that momentum to carry over into 2015. In December, 252,000 payroll jobs were added, and the already strong October and November numbers were revised up. Strong job growth combined with weaker labor force growth is bringing the U.S. unemployment rate down quickly, from 5.8 percent in November to 5.6 percent in December. Average weekly hours were steady for the month. But average hourly earnings dropped by 0.2 percent. We will not read too much into that one-month anomaly, but earnings are very important to real income growth, so we will continue to monitor earnings in the months ahead.

The Federal Reserve continued its pivot toward monetary policy normalization in December, modifying their forward guidance on interest rates. FOMC chairwoman Janet Yellen has bracketed the timing of the next big step in the Fed’s pivot, interest rate liftoff, which she said will occur some time from April to December of this year. We continue to expect a mid-year date for lift-off, centered on the June 16-17 FOMC meeting. A cautious and shallow trajectory for interest rate lift-off will not be a significant headwind against U.S. growth in the second half of 2015. We expect long-term interest rates to increase as well, but not quickly. Global risk aversion and quantitative easing by the Bank of Japan and the European Central Bank will keep some downward pressure on Treasury bond yields.

Federal fiscal policy will be less of drag on GDP growth in 2015. The federal spending sequester remains in place but most of the drag from federal spending is behind us. State and local government spending is stepping up as state economies and residential real estate markets continue to firm. We expect total government spending to begin to add to growth in 2015, making a stronger contribution in 2016 and beyond.

Strong job creation is setting the stage for a ramp up in real (after inflation) wage growth. For all of 2014 average hourly earning increased faster than the consumer price index on a year-over-year basis. So despite the anomalous earnings components of the December jobs report, we expect employers to continue to bid up wages as the unemployment rate tightens. A better paid, more confident consumer will support GDP growth through steady gains in real consumer spending. Auto sales will increase only moderately in 2015, as sales approach a cyclical peak in the neighborhood of 17-17.5 million units annually. Home sales and construction will get some help from strong income growth and easing mortgage underwriting standards.

Energy prices are a wildcard for 2015. We expect crude oil and natural gas prices to remain weak in 2015, resulting in a significant cooling of U.S. oil field activity and a shift in regional growth patterns away from oil-producing states and toward coastal population centers.

 For a PDF version of the complete Comerica U.S. Monthly with additional commentary, tables, and charts, click here: USEconomicUpdate-0115.

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Comerica Economic Weekly

U.S. economic data from year-end 2014 continues to impress, setting the stage for solid momentum in 2015. U.S. job creation remains strong in December as 252,000 payroll jobs were added on a net basis. Moreover, the already strong October and November numbers were revised up. Strong job growth combined with weaker labor force growth is bringing the U.S. unemployment rate down quickly, from 5.8 percent in November to 5.6 percent in December. A tighter unemployment rate adds to the potential for wage inflation later this year. In November, average hourly earning dropped slightly.

Unemployment insurance claims are consistent with the jobs report. Initial claims for unemployment insurance decreased by 4,000 for the week ending January 4, to hit 294,000. Continuing claims for the week ending December 27 increased stronger than expected, by 101,000 to hit 2,452,000, but the trend is still good.

The ISM Non-Manufacturing Index for December fell moderately, from a strong 59.3 in November to a still-positive 56.2. Anecdotal comments were generally positive, including glowing words from auto dealers.

U.S. light vehicle sales for December eased slightly, from an impressive 17.2 million unit annual pace in November, to a still solid 16.9 million unit rate. The fourth quarter average sales rate finished slightly above the third quarter average, implying a positive fourth quarter for consumer spending on durable goods, an important component of GDP.

Fourth quarter GDP also got a shot in the arm from the November U.S. international trade data. The trade gap narrowed more than expected for the month, to $39.0 billion dollars. Imports decreased by $5.2 billion, while exports eased by $2.1 billion. After adjusting for price changes, the real balance of trade in goods dipped in November. So far, the real balance of trade for October and November is very close to the third quarter average, suggesting that there will be little to no drag from trade in Q4 GDP.

The Baker Hughes U.S. rotary drilling rig count, an important indicator of oil field activity, is dropping off its September peak. The total count for the first week of January has dropped from 1,931 in late September to 1,811. With oil prices still sliding, WTI crude oil is now below $50 per barrel, we expect the rig count to drop significantly through 2015 and employment in the resources and mining sector to begin to decline very soon.

Consumer credit increased by $14 billion in November, driven by gains in nonrevolving credit. Revolving credit actually declined slightly perhaps helped by lower gasoline prices.

The solid December labor market data keeps the Federal Reserve on track for interest lift-off between April and December of this year. We continue to place our best guess for lift-off on the June 16/17 FOMC meeting.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 01-09-15 .

 

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December 2014 U.S. Employment

Another Strong Month for Job Creation, Unemployment Rate Falls to 5.6 Percent

  • The December Payroll Employment Survey showed a gain of 252,000 payroll jobs.
  • The Unemployment Rate for December dropped to 5.6 percent.
  • Average Weekly Hours for all employees were steady at 34.6 hours.
  • Average Hourly Earnings were down by 0.2 percent in December.

U.S. job creation remains strong in December as 252,000 payroll jobs were added on a net basis. Moreover, the already strong October and November numbers were revised up. October now shows a strong +261,000 and November, a robust +353,000. Strong job growth combined with weaker labor force growth is bringing the U.S. unemployment rate down quickly, from 5.8 percent in November to 5.6 percent in December. The household employment survey, which feeds into the unemployment rate calculation, was less impressive in December, adding only 111,000 jobs. But that series can be somewhat erratic on a month-to-month basis. In October, the household employment series showed a whopping gain of 653,000 jobs. Labor force growth is definitely weaker than expected. In December the labor force contracted by 273,000 workers. The reported data is seasonally adjusted, but December data is often subject to special factors that cannot be scrubbed out, so we take the large drop in the labor force with a grain of salt. Average weekly hours were steady for the month. Another interesting metric was average hourly earnings, which dropped by 0.2 percent. We will not read too much into that one-month anomaly, but earnings are very important to real income growth, so we will continue to monitor earnings in the months ahead.

Payroll job gains were broad based in December. Mining and logging industries added 2,000 jobs, including a small gain in oil and gas extraction. We expect the official statistics to show that the oil patch is shedding jobs soon. The weekly drilling rig count already shows a significant downturn into early January. Construction industries added a strong 48,000 jobs in December, tipped toward nonresidential projects. Manufacturing added a respectable 17,000 jobs mostly in durable goods industries including primary and fabricated metals. Wholesale trade employment was up 10,000 jobs. Retail trade was subdued at +7,700 jobs, following a strong month in November. Financial services employment was up 10,000 jobs in December. Professional and business services gained a solid 52,000 jobs. Education and healthcare employment was up 48,000 for the month. Leisure and hospitality industries added 36,000 jobs. Lower gasoline prices are helping there. Government employment was up 12,000 jobs in December.

Yesterday’s data on unemployment insurance claims is consistent with the December jobs report. Initial claims for unemployment insurance decreased by 4,000 for the week ending January 4, to hit 294,000. Continuing claims for the week ending December 27 increased stronger than expected, by 101,000 to hit 2,452,000, but the trend is still good.

The solid December labor market data keeps the Federal Reserve on track for interest lift-off between April and December of this year. We continue to place our best guess for lift-off on the June 16/17 FOMC meeting.

Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is up to 2.00 percent. NYMEX crude is down to $48.54/barrel. Natural gas futures are down to $2.97/mmbtu.

ALERT010915-Employment

For a PDF version of this Comerica Economic Alert click here: Employment 01-09-15.

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Comerica Bank’s Michigan Index Eases after Six Months of Growth

Comerica Bank’s Michigan Economic Activity Index slipped slightly in October, decreasing 1.5 percentage points to a level of 119.2. October’s reading is 45 points, or 61 percent, above the index cyclical low of 73.8. The index averaged 114.2 points for all of 2013, seven and one-tenth points above the index average for 2012. September’s index reading was 120.7.

“Our Michigan Economic Activity Index eased in October, breaking a string of six consecutive monthly gains. Payroll job creation has been inconsistent in Michigan through 2014 despite significant gains in U.S. auto sales through the year. October auto sales were solid at a 16.5 million unit pace, and November and December improved from that base, bringing the fourth quarter average sales rate up to 16.9 million units. Lower gasoline prices and solid job growth nationwide are supporting strong auto sales, which are now near the top of the cycle,” said Robert Dye, Chief Economist at Comerica Bank. “We expect to see ongoing modest-to-moderate growth for Michigan in 2015, supported by a strong manufacturing sector and improving real estate markets.”

StateIndex1214Michigan

For a PDF version of the Michigan Economic Activity Index click here: Michigan_1214.

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Comerica Bank’s California Index Increases for Seventh Consecutive Month

Comerica Bank’s California Economic Activity Index grew in October, climbing 0.5 percentage points to a level of 115.9. October’s reading is 32 points, or 38 percent, above the index cyclical low of 83.8. The index averaged 106.2 points for all of 2013, five and one-half points above the average for all of 2012. September’s index reading was 115.4.

“Our California Economic Activity Index increased in October, for the seventh consecutive month, showing ongoing improvement to the U.S.’s largest state economy. Recent job growth has been stronger than the U.S. average and real estate markets remain tight. The state’s unemployment rate is still higher than the U.S. average, but is trending down steadily, falling to 7.2 percent by November. Lower gasoline prices are a boon to California consumers and to the state’s very important tourism industry,” said Robert Dye, Chief Economist at Comerica Bank. “We expect to see positive momentum in the California economy through 2015.”

StateIndex1214California

For a PDF version of the California Economic Activity Index click here: CaliforniaIndex_1214.

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Comerica Bank’s Arizona Index Continues to Climb

Comerica Bank’s Arizona Economic Activity Index grew in October, increasing 0.6 percentage points to a level of 101.1. October’s index reading is 24 points, or 32 percent, above the index cyclical low of 76.7. The index averaged 95.4 points for all of 2013, seven and four-tenths points above the average for full-year 2012. September’s index reading was 100.5.

“Our Arizona Economic Activity Index climbed in October, showing increasing economic momentum for the state at the end of 2014. House construction has remained range bound over the last two years, leaving the state without a historically important driver of better-than-average economic growth,” said Robert Dye, Chief Economist at Comerica Bank. “We expect economic activity in Arizona to gain momentum through 2015, supported by a strong consumer economy consistent with lower gasoline prices. We look for house construction to improve through the year, but it will likely remain shy of recent peak levels.”

StateIndex1214Arizona

For a PDF version of the Arizona Economic Activity Index click here: ArizonaIndex_1214.

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Comerica Bank’s Florida Index Shows Gains for Seventh Month

Comerica Bank’s Florida Economic Activity Index improved in October, growing 1.0 percentage points to a level of 121.8. October’s index reading is 44 points, or 56 percent, above the index cyclical low of 78.0. The index averaged 109.2 in 2013, ten and one half points above the average for all of 2012. September’s index reading was 120.8.

“Our Florida Economic Activity Index increased again in October, for the seventh consecutive month. All but one of the sub-components of the index increased for the month. Only enplanements dipped slightly. Payroll job growth in Florida has been consistently above the national average for the last three years. The Florida economy is gaining momentum, supported by improving labor markets and property markets, and by lower gasoline prices. Lower gasoline prices make it easier for tourists to visit Florida and put more spending money in their pockets when they get there,” said Robert Dye, Chief Economist at Comerica Bank. “We expect the Florida economy to continue to perform strongly in 2015.”

StateIndex1214Florida

For a PDF version of the Florida Economic Activity Index click here: FloridaIndex_1214.

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Comerica Bank’s Texas Index Shows Growth through Fall 2014

Comerica Bank’s Texas Economic Activity Index grew in October, increasing 0.5 percentage points to a level of 107.8. October’s reading is 35 points, or 48 percent, above the index cyclical low of 72.6. The index averaged 100.3 points for all of 2013, two and one-tenth points above the average for full-year 2012. September’s index reading was 107.3.

“The Texas economy expanded at a robust rate into the fourth quarter of 2014, as shown by our Texas Economic Activity Index for October. Seven out of eight components of the index improved in October, including payroll employment, which was up a strong 3.7 percent over the previous 12 months. However, lower oil prices are a game changer for Texas. During October, the price of West Texas Intermediate crude oil was in the mid-$80 per barrel range and we were not yet seeing signs of decreasing drilling activity in the state. The rig count was stable from August through October of last year,” said Robert Dye, Chief Economist at Comerica Bank. “With WTI now down to less than $50 per barrel, we are seeing a significant slowdown in oil field activity and this will be a drag on Texas economic activity in 2015.”

StateIndex1214Texas

For a PDF version of the Texas Economic Activity Index click here: TexasIndex_1214.

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January Rig Count, December ADP Employment, ISM Non-MF Index, Auto Sales, November Trade

U.S. Economy Finishes 2014 Strong, Oil Prices and Rig Count Still Sliding

  • The December ADP Employment Report showed a strong gain of 241,000 private-sector jobs.
  • The ISM Non-Manufacturing Index for December eased to a still-positive 56.2.
  • Light Vehicle Sales for December increased to a 16.9 million unit annual rate.
  • The U.S. International Trade Gap for November narrowed to $39.0 billion.
  • The Baker Hughes rotary rig count for the U.S. dropped in early January to 1,811 rigs.

U.S. economic data from year-end 2014 continues to impress, setting the stage for solid momentum in 2015. Labor market indicators are strong. The ADP Employment Report for December showed a better-than-expected gain of 241,000 private sector jobs in December plus an upward revision to November. The ADP number raises expectations for the official Bureau of Labor Statistics jobs numbers due out this Friday morning. However, the December jobs count is always subject to interpretation, as seasonal factors add uncertainty to the final numbers. We expect to see a strong BLS report on Friday, featuring about 240,000 payroll jobs added and a decline in the U.S. unemployment rate to 5.7 percent.

The ISM Non-Manufacturing Index for December fell moderately, from a strong 59.3 in November to a still-positive 56.2. A reading above 50 indicates improving overall conditions. Most sub-indexes remain above 50, including production, employment and new orders. The price sub-index showed slight contraction for the month as did backlog of orders. Anecdotal comments were generally positive, including glowing words from auto dealers.

U.S. light vehicle sales for December eased slightly, from an impressive 17.2 million unit annual pace in November, to a still solid 16.9 million unit rate. Truck sales eased a little more than car sales for the month. The fourth quarter average sales rate finished slightly above the third quarter average, implying a positive fourth quarter for consumer spending on durable goods, an important component of GDP.

Fourth quarter GDP also got a shot in the arm from the November U.S. international trade data. The trade gap, the difference between total exports and total imports, narrowed more than expected for the month, to $39.0 billion dollars. Imports decreased by $5.2 billion, while exports eased by $2.1 billion. After adjusting for price changes, the real balance of trade in goods dipped in November. So far, the real balance of trade for October and November is very close to the third quarter average, suggesting that there will be little to no drag from trade in Q4 GDP.

The Baker Hughes U.S. rotary drilling rig count, an important indicator of oil field activity, is dropping off its September peak. The total count for the first week of January has dropped from 1,931 in late September to 1,811. With oil prices still sliding, WTI crude oil is now below $50 per barrel, we expect the rig count to drop significantly through 2015 and employment in the resources and mining sector to begin to decline very soon.

Market Reaction: U.S. stock prices opened with gains. Long-term Treasury yields are down with the 10-Year T-bond rate breaking below 2 to 1.98. NYMEX crude oil is firming at $48.39/barrel. Natural gas futures are very low at $2.96/mmBTU.

ALERT010715-ADP

For a PDF version of this Comerica Economic Alert click here: ADP 01-07-15.

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