2014Q2 GDP, July ADP Employment

Inventory Rebound Propels Q2 GDP, Job Growth Continues

  • Real Gross Domestic Product growth for 2014Q2 was stronger than expected at 4.0 percent.
  • Inventories rebounded after a weak first quarter, adding 1.7 percent to real GDP growth, not sustainable.
  • Real Consumer Spending increased at a 2.5 percent annual rate, as auto sales accelerated.
  • The ADP Employment Report for July showed a solid gain of 218,000 private-sector jobs for the month.

The first estimate of 2014Q2 real GDP growth came in stronger than expected, at a 4.0 percent annual rate. Overall, it was a solid, if unsustainable, report. The solid component was real consumer spending, up at a 2.5 percent annual rate, well above the weather-beaten 1.2 percent growth rate for the first quarter of this year. Auto sales were an important factor. Auto sales hit a 17.0 million unit rate for June. The Bureau of Economic Analysis estimates that real consumer spending on durable goods (including cars) for Q2 increased at a 14.0 percent annual rate. Spending on nondurables was also good, increasing to a 2.5 percent growth rate. The services component of consumer spending was a little weak, gaining just 0.7 percent. We could see some revision there later on. The unsustainable component of the GDP report was the unexpected ramp-up in inventories. Real inventory accumulation for the quarter was $93.4 billion ($2009), which added almost $60 billion (real) to the increase in Q2 GDP, boosting headline GDP growth by 1.7 percent. Ninety-three billion for the quarter is not sustainable and leads us to expect that inventories will be a small-to-moderate drag on Q3 GDP. Fixed (non-inventory) business investment accelerated in Q2, adding 0.9 percent to headline GDP growth. Exports were assumed to be a moderate drag for the quarter. Federal spending was a slight drag, inhibited by the federal budget sequester. State and local government spending more than compensated for the slight drag from federal spending, adding 0.4 percent to headline GDP growth.

Adding to the good economic news, the ADP Employment Report for July showed an increase of 218,000 private-sector jobs for the month, about as expected. This bodes well for Friday’s official BLS employment report. Plus 220,000 is a reasonable expectation for the official numbers on Friday. That would extend the winning streak of consecutive +200k months to six. With good news from GDP and labor markets, the Federal Open Market Committee can be expected to announce another $10 billion reduction in their asset purchase program later today.

Market Reaction: Equity markets opened with gains, but quickly normalized. The 10-year Treasury bond yield is up to 2.52 percent. NYMEX crude oil is up to $101.39/barrel. Natural gas futures are down to $3.76/mmbtu.

Economic Alert 073014

For a PDF version of this Comerica Economic Alert click here: GDP 07-30-14.

Share '2014Q2 GDP, July ADP Employment' on Delicious Share '2014Q2 GDP, July ADP Employment' on Digg Share '2014Q2 GDP, July ADP Employment' on Facebook Share '2014Q2 GDP, July ADP Employment' on Google+ Share '2014Q2 GDP, July ADP Employment' on LinkedIn Share '2014Q2 GDP, July ADP Employment' on Pinterest Share '2014Q2 GDP, July ADP Employment' on reddit Share '2014Q2 GDP, July ADP Employment' on StumbleUpon Share '2014Q2 GDP, July ADP Employment' on Twitter Share '2014Q2 GDP, July ADP Employment' on Add to Bookmarks Share '2014Q2 GDP, July ADP Employment' on Email Share '2014Q2 GDP, July ADP Employment' on Print Friendly
Posted in Daily, General, United States | Tagged , , , | Comments Off

Comerica Bank’s Florida Index Gains in May

Comerica Bank’s Florida Economic Activity Index increased by 0.4 percentage points in May, to a level of 116.2. May’s index reading is 36 points, or 45 percent, above the index cyclical low of 80.4. The index averaged 114 in 2013, nine points above the average for all of 2012. April’s index reading was revised up to 115.8.

“Our Florida Economic Activity Index improved in May, reversing a slight two-month decline. Most components of the index increased in May; however, payroll employment showed a slight decline. Recent job growth has generally been faster than the U.S. average, and we expect that to continue through the second half of this year,” said Robert Dye, Chief Economist at Comerica Bank. “House price appreciation has slowed in both Miami and Tampa, consistent with trends visible in most major markets across the U.S.”

FL Index 0714

For a PDF version of the Florida Economic Activity Index click here: FloridaIndex_0714.

Share 'Comerica Bank’s Florida Index Gains in May' on Delicious Share 'Comerica Bank’s Florida Index Gains in May' on Digg Share 'Comerica Bank’s Florida Index Gains in May' on Facebook Share 'Comerica Bank’s Florida Index Gains in May' on Google+ Share 'Comerica Bank’s Florida Index Gains in May' on LinkedIn Share 'Comerica Bank’s Florida Index Gains in May' on Pinterest Share 'Comerica Bank’s Florida Index Gains in May' on reddit Share 'Comerica Bank’s Florida Index Gains in May' on StumbleUpon Share 'Comerica Bank’s Florida Index Gains in May' on Twitter Share 'Comerica Bank’s Florida Index Gains in May' on Add to Bookmarks Share 'Comerica Bank’s Florida Index Gains in May' on Email Share 'Comerica Bank’s Florida Index Gains in May' on Print Friendly
Posted in Economic Activity, Florida, General, Indices | Tagged , | Comments Off

Comerica Bank’s Arizona Index Continues to Improve in May

Comerica Bank’s Arizona Economic Activity Index advanced in May, increasing 3.1 percentage points to a level of 110.2. May’s index reading is 39 points, or 55 percent, above the index cyclical low of 71.2. The index averaged 97 points for all of 2013, 10 points above the average for full-year 2012. April’s index reading was unchanged at 107.1.

“Our Arizona Economic Activity Index increased in May, indicating ongoing gains to the Arizona economy. The Arizona Index has increased for seven consecutive months, driven by job creation and by recovering residential real estate markets. We expect to see an overall improving trend in the index through the remainder of this year, but the pace of improvement will likely slow from what we have seen through the first five months of 2014,” said Robert Dye, Chief Economist at Comerica Bank. “House prices in Phoenix are generally up about 8 percent over the previous 12 months, but recently the pace of appreciation appears to be cooling.”

AZ Index 0714

For a PDF version of the Arizona Economic Activity Index click here: ArizonaIndex_0714.

Share 'Comerica Bank’s Arizona Index Continues to Improve in May' on Delicious Share 'Comerica Bank’s Arizona Index Continues to Improve in May' on Digg Share 'Comerica Bank’s Arizona Index Continues to Improve in May' on Facebook Share 'Comerica Bank’s Arizona Index Continues to Improve in May' on Google+ Share 'Comerica Bank’s Arizona Index Continues to Improve in May' on LinkedIn Share 'Comerica Bank’s Arizona Index Continues to Improve in May' on Pinterest Share 'Comerica Bank’s Arizona Index Continues to Improve in May' on reddit Share 'Comerica Bank’s Arizona Index Continues to Improve in May' on StumbleUpon Share 'Comerica Bank’s Arizona Index Continues to Improve in May' on Twitter Share 'Comerica Bank’s Arizona Index Continues to Improve in May' on Add to Bookmarks Share 'Comerica Bank’s Arizona Index Continues to Improve in May' on Email Share 'Comerica Bank’s Arizona Index Continues to Improve in May' on Print Friendly
Posted in Arizona, Economic Activity, General, Indices | Tagged , | Comments Off

Comerica Bank’s California Index Ticks Down in May

Comerica Bank’s California Economic Activity Index eased in May, declining 0.4 percentage points to a level of 112.9. May’s reading is 40 points, or 56 percent, above the index cyclical low of 72.6. The index averaged 106 points for all of 2013, five points above the average for all of 2012. April’s index reading was revised up to 113.3.

“Our California Economic Activity Index for May gave back just a little of the solid gain that we saw in April. State labor market conditions continue to improve. In May, California’s payroll employment total of 15,448,600 eclipsed the pre-recession high from August 2007. Also, residential real estate conditions are improving across the state,” said Robert Dye, Chief Economist at Comerica Bank. “However, we are seeing some softs spots in the data stream. Notably, state exports are subdued as are sales tax collections. Overall, we expect the California economy to continue to grow moderately through the second half of this year and into 2015.”

CA Index 0714

For a PDF version of the California Economic Activity Index click here: CaliforniaIndex_0714.

Share 'Comerica Bank’s California Index Ticks Down in May' on Delicious Share 'Comerica Bank’s California Index Ticks Down in May' on Digg Share 'Comerica Bank’s California Index Ticks Down in May' on Facebook Share 'Comerica Bank’s California Index Ticks Down in May' on Google+ Share 'Comerica Bank’s California Index Ticks Down in May' on LinkedIn Share 'Comerica Bank’s California Index Ticks Down in May' on Pinterest Share 'Comerica Bank’s California Index Ticks Down in May' on reddit Share 'Comerica Bank’s California Index Ticks Down in May' on StumbleUpon Share 'Comerica Bank’s California Index Ticks Down in May' on Twitter Share 'Comerica Bank’s California Index Ticks Down in May' on Add to Bookmarks Share 'Comerica Bank’s California Index Ticks Down in May' on Email Share 'Comerica Bank’s California Index Ticks Down in May' on Print Friendly
Posted in California, Economic Activity, General, Indices | Tagged , | Comments Off

Comerica Bank’s Texas Index Climbs Again in May

Comerica Bank’s Texas Economic Activity Index advanced 1.7 percentage points in May to a level of 110.8. May’s reading is 39 points, or 55 percent, above the index cyclical low of 71.7. The index averaged 105 points for all of 2013, three points above the average for full-year 2012. April’s index reading was revised slightly down to 109.1.

“Our Texas Index climbed again in May, driven by ongoing strong job creation, export growth and tax revenues. Energy prices remain supportive of elevated drilling activity. The drilling rig count for Texas remains high after climbing significantly this spring. The slight relaxation of the decades-old ban on crude oil exports to allow for condensate exports is a small positive for the state’s economy,” said Robert Dye, Chief Economist at Comerica Bank. “Demographic momentum is strong and will continue to fuel construction activity. We expect to see robust gains in the Texas economy through the second half of this year.”

TX Index 0714

For a PDF version of the Texas Economic Activity Index, click here: TexasIndex_0714.

Share 'Comerica Bank’s Texas Index Climbs Again in May' on Delicious Share 'Comerica Bank’s Texas Index Climbs Again in May' on Digg Share 'Comerica Bank’s Texas Index Climbs Again in May' on Facebook Share 'Comerica Bank’s Texas Index Climbs Again in May' on Google+ Share 'Comerica Bank’s Texas Index Climbs Again in May' on LinkedIn Share 'Comerica Bank’s Texas Index Climbs Again in May' on Pinterest Share 'Comerica Bank’s Texas Index Climbs Again in May' on reddit Share 'Comerica Bank’s Texas Index Climbs Again in May' on StumbleUpon Share 'Comerica Bank’s Texas Index Climbs Again in May' on Twitter Share 'Comerica Bank’s Texas Index Climbs Again in May' on Add to Bookmarks Share 'Comerica Bank’s Texas Index Climbs Again in May' on Email Share 'Comerica Bank’s Texas Index Climbs Again in May' on Print Friendly
Posted in Economic Activity, General, Indices, Texas | Tagged , | Comments Off

Comerica Bank’s Michigan Index Rebounds in May

Comerica Bank’s Michigan Economic Activity Index improved in May, increasing 4.3 percentage points to a level of 124.0. May’s reading is 52 points, or 72 percent, above the index cyclical low of 71.9. The index averaged 125 for all of 2013, 11 points above the index average for 2012. April’s index reading was revised slightly down to 119.7.

“Our Michigan Index ended a six-month slide by rebounding in May, as all seven components improved for the month. Fortunately, the state has shown gains in payroll employment in May and also in June. (June date does not figure into our May index). The previously weak employment trend has been a source for concern about the state economy. If the state can consistently add jobs through the second half of the year, that would be a reassuring signal,” said Robert Dye, Chief Economist at Comerica Bank. “In addition to employment, exports, sales tax, hotel occupancy, unemployment insurance claims, residential building permits and vehicle assemblies all showed signs of improvement in May.”

MI Index 0714

For a PDF version of the Michigan Economic Activity Index click here: Michigan0714.

Share 'Comerica Bank’s Michigan Index Rebounds in May' on Delicious Share 'Comerica Bank’s Michigan Index Rebounds in May' on Digg Share 'Comerica Bank’s Michigan Index Rebounds in May' on Facebook Share 'Comerica Bank’s Michigan Index Rebounds in May' on Google+ Share 'Comerica Bank’s Michigan Index Rebounds in May' on LinkedIn Share 'Comerica Bank’s Michigan Index Rebounds in May' on Pinterest Share 'Comerica Bank’s Michigan Index Rebounds in May' on reddit Share 'Comerica Bank’s Michigan Index Rebounds in May' on StumbleUpon Share 'Comerica Bank’s Michigan Index Rebounds in May' on Twitter Share 'Comerica Bank’s Michigan Index Rebounds in May' on Add to Bookmarks Share 'Comerica Bank’s Michigan Index Rebounds in May' on Email Share 'Comerica Bank’s Michigan Index Rebounds in May' on Print Friendly
Posted in Economic Activity, General, Indices, Michigan | Tagged , | Comments Off

Comerica Economic Weekly

U.S. economic data was generally a little softer than expected this week. This is not surprising given the spate of stronger-than-expected data we have seen through early summer. Even though data was soft, it remains consistent with our view that the U.S. economy bounced back quickly from a dismal first quarter, and will maintain a moderate growth trajectory for the remainder of this year.

Retail sales for June increased by just 0.2 percent, even after a jump in unit auto sales to a 17.0 million unit rate for the month. In a data disconnect, the dollar value of retail auto sales fell by 0.3 percent in June. Building materials sales fell by 1.0 percent, consistent with softer housing starts. The commonality there might be the weather. June was very rainy in some areas. Other categories of retail sales were within normal ranges.

Housing starts fell by 9.3 percent in June to 893,000. Permits were down 4.2 percent to 963,000. However, builder confidence increased in July.

Industrial production also gained an uninspired 0.2 percent in June. Utility output declined for the fifth consecutive month, after seasonal adjustment. Manufacturing output was weaker than expected, up just 0.1 percent, weighed down by a decline in energy products.

The June producer price index for final demand increased by a stronger-than-expected 0.4 percent, due to higher energy prices. We may see some relief in energy prices in the July and August PPI data.

Initial claims for unemployment insurance for the week ending June 12 fell by 3,000 to hit 302,000. This number is consistent with a falling unemployment rate.

Business inventories gained 0.5 percent in May, suggesting that the Q1 inventory drag is dissipating and adding support to our expectation of a Q2 GDP rebound. The first estimate of Q2 GDP will  be released July 30.

The Conference Board’s Leading Economic Index gained 0.3 percent in June, also below consensus expectations. It was held down by building permits.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 07-18-14.

Share 'Comerica Economic Weekly' on Delicious Share 'Comerica Economic Weekly' on Digg Share 'Comerica Economic Weekly' on Facebook Share 'Comerica Economic Weekly' on Google+ Share 'Comerica Economic Weekly' on LinkedIn Share 'Comerica Economic Weekly' on Pinterest Share 'Comerica Economic Weekly' on reddit Share 'Comerica Economic Weekly' on StumbleUpon Share 'Comerica Economic Weekly' on Twitter Share 'Comerica Economic Weekly' on Add to Bookmarks Share 'Comerica Economic Weekly' on Email Share 'Comerica Economic Weekly' on Print Friendly
Posted in General, United States, Weekly | Tagged , | Comments Off

Comerica Economic Weekly

This was a light week for U.S. data, dominated by the release of the minutes of the June 17/18 Federal Open Market Committee meeting. There are several important components of the minutes that shed some light on a still-murky Federal Reserve exit strategy.

In June, the FOMC discussed the role that the rate of interest on excess reserves (IOER) should play. Participants agreed that it should play a central role in policy normalization. It was generally agreed that the interest rate on overnight reverse repurchase agreements (ONRRP) would be set below the IOER rate, to provide a floor under money market interest rates. The appropriate spread between IOER and ONRPP was also discussed, with a consensus view of near or above 20 basis points.

Most participants thought that the fed funds rate should continue to play a role in the Federal Reserve’s operations and communication strategy. There may, however, be a change in the way that the fed funds rate is calculated, possibly affecting other interest rates linked to the fed funds rate. The FOMC is concerned that there will be consequences, potentially unintended, and by implication, unforeseen, in an expanded ONRRP facility.

The FOMC also discussed the appropriate time to change its current policy of rolling over maturing assets on its balance sheet. It appears likely that the program will continue after interest rate liftoff.

In its economic assessment, the minutes show that the FOMC is assuming a GDP bounce-back following the weak first quarter, implying that the weak first quarter did not significantly alter the trajectory of monetary policy. The committee also noted that tight credit supply was restricting housing markets. This suggests that the Federal Reserve is supportive of relaxing credit standards for residential mortgages.

It now appears likely that the FOMC will vote to eliminate its active asset purchase program at the end of this coming October. Also, the central tendency of the cluster diagram showing FOMC members’ assessment of the appropriate target rate for fed funds at the end of 2015 has shifted up slightly. This implies a slightly earlier start to interest rate lift-off. We have moved up our expectation for lift-off to 2015Q2.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 07-11-14.

 

Share 'Comerica Economic Weekly' on Delicious Share 'Comerica Economic Weekly' on Digg Share 'Comerica Economic Weekly' on Facebook Share 'Comerica Economic Weekly' on Google+ Share 'Comerica Economic Weekly' on LinkedIn Share 'Comerica Economic Weekly' on Pinterest Share 'Comerica Economic Weekly' on reddit Share 'Comerica Economic Weekly' on StumbleUpon Share 'Comerica Economic Weekly' on Twitter Share 'Comerica Economic Weekly' on Add to Bookmarks Share 'Comerica Economic Weekly' on Email Share 'Comerica Economic Weekly' on Print Friendly
Posted in General, United States, Weekly | Tagged , , | Comments Off

July 2014, Comerica U.S. Economic Update

The Story: A Mid-Cycle U.S. Economy in a Multi-Speed World

The endogenous growth story for the U.S. economy remains intact. There are two key channels of growth operating within the U.S. economy that have brought us through the recovery and into mid-cycle. One is the re-emergence of the household sector as a stabilizing force. Think of the household sector as a gyroscope that keeps the economy upright. With two-thirds of gross domestic product accounted for by consumer spending, the economic health of households is of paramount importance. Households are rapidly repairing their balance sheets. Rising home prices combined with still-low mortgage rates are allowing households to build equity in their homes at a strong rate. Homeowners’ equity is being augmented by strong job creation and by strong financial market performance. The second key channel for endogenous growth is the domestic energy sector and its impact on the manufacturing sector. Not only is the energy sector still generating strong job growth, it is fueling (literally) growth throughout the manufacturing sector by providing abundant energy at a low price.

Typically, in a mid-cycle economy, credit availability expands and risk appetite increases. We are seeing both now. Increasing credit availability and improving risk appetites will support business investment and bring the lagging edges of the economy into expansion mode. Ominously, we recall that credit expansion and risk appetite combined to fuel a strong expansion in the 2000s that ended in catastrophe. We do not anticipate a return to astronomical leverage ratios in systemically important financial institutions combined with the rapid  expansion of complex and toxic financial instruments worldwide.

To sustain the mid-cycle economy into 2015, we look for steady household spending, improved residential and business investment, the end of drag from tight controls on federal spending and improved demand globally for U.S. goods and services.

An important challenge to this sanguine outlook comes from outside the U.S. economy. Global growth remains unsteady. The multi-speed global economy is contributing to a de-coupling of central bank policy. Foreign exchange rates and sovereign bond spreads are vulnerable to the de-synchronization of asset purchases and interest rate policy among major central banks. We expect the Federal Reserve to keep tapering its asset purchase program in measured steps, meaning another $10 billion reduction in QE at the end of July. Even as the Fed loosens its grip on the long end of the yield curve, it will maintain the near-zero fed funds rates through the remainder of this year. We still expect interest rate lift-off to come by the third quarter of 2015.

For a PDF version of the complete Comerica U.S. Monthly with additional commentary, tables, and charts, click here: USEconomicUpdate0714.

Share 'July 2014, Comerica U.S. Economic Update' on Delicious Share 'July 2014, Comerica U.S. Economic Update' on Digg Share 'July 2014, Comerica U.S. Economic Update' on Facebook Share 'July 2014, Comerica U.S. Economic Update' on Google+ Share 'July 2014, Comerica U.S. Economic Update' on LinkedIn Share 'July 2014, Comerica U.S. Economic Update' on Pinterest Share 'July 2014, Comerica U.S. Economic Update' on reddit Share 'July 2014, Comerica U.S. Economic Update' on StumbleUpon Share 'July 2014, Comerica U.S. Economic Update' on Twitter Share 'July 2014, Comerica U.S. Economic Update' on Add to Bookmarks Share 'July 2014, Comerica U.S. Economic Update' on Email Share 'July 2014, Comerica U.S. Economic Update' on Print Friendly
Posted in General, Monthly, United States | Tagged , | Comments Off

Comerica Economic Weekly

The data dump ahead of the Fourth of July weekend yielded some good results, sending equity markets off to the races. The quality of recent U.S. economic data reinforces two points of view. First, the Q1 GDP stumble was an aberration not indicative of the overall direction of the economy. Second, this is a mid-cycle economy well past the early stages of recovery.

Payroll job growth in June was robust at +288,000. The unemployment rate fell to 6.1 percent. Average hourly earnings were up 2.0 percent over the previous 12 months, not inherently inflationary as long as productivity growth returns to a similar rate. We expect to see job growth ease next month, in part due to seasonal adjustment issues involving local government employment.

Initial claims for unemployment insurance for the week ending June 28 ticked up by 2,000 to hit 315,000. The low 300,000s are consistent with ongoing improvement in labor market conditions. The high 200,000s are consistent with rapid improvement.

The U.S. international trade gap narrowed in May, to -$44.4 billion. It looks like trade will be a small drag on Q2 GDP. We will be completing our July U.S. Economic Update next week. Q2 real GDP growth looks set to be in the vicinity of +2.5 percent.

Auto sales were off to the races in June, up to a 17.0 million unit annual rate. Seventeen million is a mid-cycle number. We expect to see stronger months over the remainder of 2014 and through 2015, but we should also expect to see some weaker months too.

The ISM Manufacturing Index for June dipped inconsequentially to 55.3, still a solid reading showing that manufacturing conditions continue to improve. The ISM Non-manufacturing Index also dipped slightly in June, to a still-strong 56.0.

The next scheduled meeting of the Federal Open Market Committee is July 29/30. We expect to see another $10 billion tapering of the Fed’s active asset purchase program and no change to interest rate policy. The next big event for the Fed may be the release of a new set of “exit principles” promised sometime later this year.

For now, enjoy the barbeque and fireworks. Have a happy and safe Fourth of July!

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 07-03-14.

Share 'Comerica Economic Weekly' on Delicious Share 'Comerica Economic Weekly' on Digg Share 'Comerica Economic Weekly' on Facebook Share 'Comerica Economic Weekly' on Google+ Share 'Comerica Economic Weekly' on LinkedIn Share 'Comerica Economic Weekly' on Pinterest Share 'Comerica Economic Weekly' on reddit Share 'Comerica Economic Weekly' on StumbleUpon Share 'Comerica Economic Weekly' on Twitter Share 'Comerica Economic Weekly' on Add to Bookmarks Share 'Comerica Economic Weekly' on Email Share 'Comerica Economic Weekly' on Print Friendly
Posted in General, United States, Weekly | Tagged , | Comments Off