February International Trade, March Auto Sales and UI Claims

Trade Gap Narrows, Autos Sales Jump, Claims Fall, Life is Good

  • The U.S. International Trade Gap narrowed to -$35.4 billion in February.
  • Light Vehicle Sales accelerated to a 17.2 million unit annual rate in March.
  • Initial Claims for Unemployment Insurance fell by 20,000 to hit 268,000 for the week ending March 28.

The string of softer-than-expected U.S. economic data was broken yesterday and this morning with better-than-expected trade, auto sales and UI claims. However, the trade numbers look quirky and may be less positive than the headline numbers imply. The U.S. international trade gap narrowed noticeably from -$42.7 billion in January to -$35.4 billion in February. Exports of goods dipped by $2.9 billion in February while exports of services were little changed. The beneficial push to the overall numbers came from the imports of goods, which declined by $10.3 billion for the month, while the imports of services were little changed. The biggest swing in goods imports came from industrial supplies and materials. Crude oil and other petroleum products are a part of that grouping. Crude oil imports fell by $2.3 billion in February and other petroleum product imports dipped by another $0.4 billion. Nonautomotive capital goods imports also fell by $2.6 billion. After adjusting for price effects, the real balance of trade in goods fell by $3.8 billion ($2009) in February. So far, the January and February average for the real balance of trade in goods is still slightly worse than the 2014Q4 average, implying that trade will still be a small negative for 2015Q1 GDP. So even though the nominal headline number for February looks good, the first quarter 2015 numbers may not be favorable, especially if we see some reversion to the export and import data in March.

Auto sales accelerated back to a 17.2 million unit annual rate in March; a number last seen in November. The slide in sales through December, January and February ran counter to strong job growth and falling gasoline prices. So it looks like some pent-up demand over the winter got spent out in March. The 17.5 million unit mark from last August is still the local high point. We expect that auto sales will stay strong this year but are cresting at their cyclical high. Improving residential construction activity this spring may support pickup truck sales, although cooler oil drilling activity is a downer. Initial claims for unemployment insurance fell by 20,000, reaching a very low 268,000 for the week ending March 28. Even with reduced expectations for tomorrow’s official payroll report for March, U.S. labor market indicators are all going in the right direction. Regionally, we note that Texas led states with a 2,035 increase in UI claims for the week, likely related to reduced oil field activity.

Market Reaction: U.S. equity prices are up. The 10-year Treasury Bond yield is up to 1.90 percent. NYMEX crude oil is down to $49.47/barrel. Natural gas futures are up to $2.67/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: Int Trade 04-02-15.

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Comerica Bank’s Michigan Index Shows Third Consecutive Increase

Comerica Bank’s Michigan Economic Activity Index increased in January, growing 0.3 percentage points to a level of 120.6. January’s reading is 47 points, or 63 percent, above the index cyclical low of 73.8. The index averaged 117.6 points for all of 2014, three and three-tenths points above the index average for 2013. December’s index reading was 120.3.

“Our Michigan Economic Activity Index increased for the third consecutive month in January, indicating ongoing gains to the Michigan economy. Inputs to the headline index were mixed, with 5 out of 8 components increasing for the month, including payroll employment. We expect that the push to the Michigan economy from improving manufacturing conditions will ease in the months ahead as auto production crests at a cyclical high, and manufactured exports face increasing price competition due to a stronger dollar,” said Robert Dye, Chief Economist at Comerica Bank. “We look for non-manufacturing industries to take a larger share of new jobs this year.”

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For a PDF version of the Michigan Economic Activity Index click here: Michigan_0315.

 

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Comerica Bank’s Florida Index Gaining Consistently

Comerica Bank’s Florida Economic Activity Index improved in January, growing 1.2 percentage points to a level of 125.9. January’s index reading is 48 points, or 61 percent, above the index cyclical low of 78.0. The index averaged 118.0 in 2014, eight and eight-tenths points above the average for all of 2013. December’s index reading was 124.7.

“Our Florida Economic Activity Index increased in January for the 10th consecutive month. Most components of the index were positive in January; only exports and housing starts dipped. Housing starts have been range bound, not improving since early 2013, but we expect to see more activity this year, supported by solid job growth. Job creation in Florida was solid through the second half of 2014 and into this January when it registered a strong 3.4 percent year-over-year rate, well above the U.S. average rate of 2.3 percent,” said Robert Dye, Chief Economist at Comerica Bank. “Restrained building activity has contributed to tighter housing availability, supporting prices. Miami posted a strong 8.3 percent increase in its house price index for the year ending in January, while Tampa was up 5.7 percent.”

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For a PDF version of the Florida Economic Activity Index click here: FloridaIndex_0315.

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Comerica Bank’s Arizona Index Shows Strong Gains

Comerica Bank’s Arizona Economic Activity Index grew in January, increasing 1.9 percentage points to a level of 105.9. January’s index reading is 29 points, or 38 percent, above the index cyclical low of 76.7. The index averaged 99.9 points for all of 2014, four and two-fifths points above the average for full-year 2013. December’s index reading was 104.0.

“Our Arizona Economic Activity Index shows accelerating growth through the end of 2014 into January this year. For the third consecutive month all 8 components of our Arizona index improved. The strong performance across the board pushed the headline index to its eighth consecutive monthly gain. Payroll job growth is improving and, at 2.6 percent year-over-year in January, has inched its way back above the U.S. average growth rate,” said Robert Dye, Chief Economist at Comerica Bank. “House price growth still lags the national average but an improving state and national economy will create more demand for housing in Arizona this year.”

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For a PDF version of the Arizona Economic Activity Index click here: ArizonaIndex_0315.

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March ADP Jobs, ISM MF Index, February Construction Spending, January Case-Shiller HPI

Grab Bag of Economic Data Consistent with Moderate Growth Economy

  • The March ADP Employment Report showed a moderate increase of 189,000 private-sector jobs.
  • The ISM Manufacturing Index for March eased to a still-positive 51.5 percent.
  • Construction Spending for February was essentially unchanged, easing by 0.1 percent.
  • The Case-Shiller U.S. House Price Index for January was up 4.5 percent over the year.

The grab bag of U.S. economic data released this morning is consistent with a moderate growth economy. Data has been cooler lately than it was through last fall, but that should not be a complete surprise. Real GDP growth of 4.6 to 5.0 percent from the middle of last year is not sustainable for this economy. Neither is consistent robust monthly job growth above 250,000 jobs per month. It feels nice when it happens, but a reversion toward the mean should be expected, and is healthy in the long-run because it reduces the potential for a deeper downside correction. We still believe that this is a 2.5-3.0 percent GDP growth economy, and one that will need to hire something in the neighborhood of 200,000 new workers per month through 2015, not 300,000. The ADP Employment Report for March showed a gain of 189,000 private sector jobs, a step down from the very strong pace we have enjoyed since last fall. This is a decent, reasonable number, and should not be interpreted as a problem in hiring. We will trim our expectations for Friday morning’s official Bureau of Labor Statistics employment report for March, to about 200,000 net new jobs for the month, and no change in the 5.5 percent unemployment rate. We still expect the unemployment rate to finish this year close to a tight 5.0 percent.

The ISM Manufacturing Index for March eased to a still-positive 51.5 percent, indicating that the rate of improvement in the manufacturing sector is slowing. Five out of ten sub-indexes remain in positive territory, including new orders and production. The employment sub-index is exactly at 50.0, indicating no change, and is consistent with the softer than expected ADP jobs data. Bad weather, lower oil prices, a stronger dollar and ongoing delays at West Coast ports were all cited as drags on manufacturing activity.

The Case-Shiller U.S. House Price Index for January showed a 4.5 percent year-over-year increase. On a yearly basis, Denver led the list of 20 cities with an 8.4 percent gain. Miami was a close second at 8.3 percent, followed by Dallas at 8.1 percent. Just for January, San Diego led the list of 20 cities with a 1.9 percent price gain for the month. Housing markets are tight, or getting tight, across most major metropolitan areas. Total construction spending was little changed in February, easing by just 0.1 percent. The value of private residential construction put in place for the month dipped by 0.2 percent. Private nonresidential construction spending increased by 0.5 percent with a gain in office building. Total public construction spending eased by 0.8 percent in February.

Market Reaction: U.S. stock prices opened with losses. The yield in 10-Year T-bonds is down to 1.87 percent. NYMEX crude oil is up to $48.84/barrel. Natural gas futures are down to $2.62/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: ADP 04-01-15.

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Texas Feels the Drag from Lower Oil Prices

Comerica Bank’s Texas Economic Activity Index continued to ease in January, decreasing 0.9 percentage points to a level of 106.3. January’s reading is 34 points, or 46 percent, above the index cyclical low of 72.6. The index averaged 105.1 points for all of 2014, four and four-fifths points above the average for full-year 2013. December’s index reading was 107.2.

“Our Texas Economic Activity Index fell for the third consecutive month in January. This is the first three-month drop in the Texas Index since June 2009. Five out of eight index components were down in January. These were exports, initial claims for unemployment insurance (inverted), housing starts, rig count and hotel occupancy. Payroll employment, house prices and sales tax were still positives in January. Obviously, the more than 50 percent drop in oil prices from mid-year 2014 to present is a significant drag on the Texas economy,” said Robert Dye, Chief Economist at Comerica Bank. “We know the payroll job growth for the state has slowed through February and the weekly rig count numbers have declined into March, so we expect to see more evidence of a downshift in the Texas economy in the months ahead.”

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For a PDF version of the Texas Economic Activity Index click here: TexasIndex_0315.

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Comerica Bank’s California Index Marks 10th Month of Growth

Comerica Bank’s California Economic Activity Index grew again in January, adding 0.8 percentage points to reach a level of 119.5. January’s reading is 36 points, or 43 percent, above the index cyclical low of 83.8. The index averaged 113.7 points for all of 2014, seven and one-half points above the average for all of 2013. December’s index reading was 118.7.

“Our California Economic Activity Index continues to show favorable economic conditions for the Eureka State. Six out of eight index components increased in January. Only exports and federal defense spending dipped. Payroll job growth for the state remains well above the U.S. average. Jobs in California increased by 3.2 percent for the 12 months ending in January while the U.S. as a whole gained 2.3 percent. The steady and strong performance of California has been a major benefit to the U.S. economy,” said Robert Dye, Chief Economist at Comerica Bank. “Strong economic performance has put pressure on housing markets in California. This is a two-edged sword. Previously depressed communities are coming back, but low housing affordability is a constraint in many areas.”

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For a PDF version of the California Economic Activity Index click here: CaliforniaIndex_0315.

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February Income and Spending, Pending Home Sales

Consumers Spend Less, Save More…Preparing to Buy Houses?

  • U.S. Personal Income increased by 0.4 percent in February, boosted by dividends.
  • After accounting for inflation and taxes, Real Disposable Personal Income gained 0.2 percent.
  • Real Personal Consumption Expenditures decreased by 0.1 percent in February.
  • The Pending Home Sales Index for February increased by 3.1 percent.

Consumer spending accounts for two-thirds of GDP so we watch that closely. When it behaves out of character, that challenges our assumptions about GDP. Now is one of those times when real consumer spending is going off script, challenging our assumptions. Despite solid real income growth this winter, real consumer spending has been weak. Real disposable personal income has increased by an average of 0.5 percent over December, January and February. Meanwhile, the monthly change in real consumer spending was just 0.1 percent in December, 0.2 percent in January and -0.1 percent in February. Put another way, real disposable personal income increased by about $17 billion from November through February (non-annualized), while real consumer spending increased by a minimal $2 billion. This implies that we have had a large increase in the personal saving rate. Indeed we see that the personal saving rate has jumped from a recent low of 4.4 percent in November, to 5.8 percent in February. Large increases in the personal saving rate are often associated with real events, including a sudden cooling of overall economic activity, or the anticipation of a tax increase. That does not appear to be the case now as job growth over the winter has been very strong and taxes are stable. Indeed, with strong job growth we would expect consumers to be more confident about spending their income, however, recently they are less so.  The income and spending data are not telling us why personal saving has ramped up. So we will go out on a limb and speculate about what might be going on with the saving rate. We observe that the personal saving rate was trending up from the beginning of 2008 through the end of 2012 (see graph). Federal taxes were increased in January 2013, and the saving rate reset from a high 10.5 percent in December 2012 to 4.5 percent in January 2013. There was no clear trend in the saving rate from its value of 4.5 January 2013 to 4.4 percent in November 2014. Now, with another tax year behind us, households are getting used to a heavier tax burden, and may be starting to resume their upward trend in savings. A less materialistic and more debt averse consumer may require us to be more conservative in our outlook for consumer spending in the years ahead. This in turn argues for a more conservative view on real GDP growth.

On the other hand, perhaps households are saving up for down payments on houses. The millennials have been late to the housing game, burdened by a weak job market and heavy student debt. Housing markets are due for a break out. In February we saw new home sales surge by 7.8 percent despite bad weather. The February pending Home Sales Index increased by 3.1 percent, suggesting we could see gains in existing homes sales in March. Stay tuned.

Market Reaction: U.S. equity markets opened with gains. The yield on the 10-year Treasury bond is steady at 1.95 percent. NYMEX crude is down to $48.34/barrel. Natural gas futures are down to $2.65/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: Personal Income 033015.

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Comerica Economic Weekly

It was a good news/bad news story at the end of March, providing us with cause for optimism and also cause for caution.

Good news came from new home sales. One month does not make a trend, but February new home sales increased by a stronger-than-expected 7.8 percent, to a 539,000 unit annual rate. This is the best monthly sales number since February 2008, and a clear upside breakout from the recent flat trend. Months’ supply of new homes for sale dipped to a tight 4.7 months’ worth, a strong signal for builders, affirming our expectations for increased residential construction activity this year, supporting mid-year GDP. The median sales price of a new home in February was up by 2.6 percent over the last year. The mix of new homes for sale may suppress median prices if more smaller or less-expensive homes are being built.

Existing home sales also increased in February, up by 1.2 percent to a 4,880,000 annual rate. Unlike new homes sales, existing home sales are not as depressed compared to historical norms. The months’ supply of existing homes for sale is also tight, at 4.6 months. The median selling price of an existing home is up 7.5 percent from February 2014.

The Consumer Price Index for February increased by 0.2 percent. With firmer gasoline prices, overall consumer inflation increased, reducing a potential conflict for the Federal Reserve. Weak inflation, disinflation or outright deflation all make it politically more challenging for the Federal Reserve to increase interest rates despite the ample evidence of significant tightening in labor markets. The February CPI report bolsters the Fed’s view on the transient nature of low energy prices. The CPI energy index was up by 1.0 percent for the month, after falling by 9.7 percent in January. Consumer food prices gained 0.2 percent in February. The core CPI (all items less food and energy) also increased by 0.2 percent for the month. Over the previous 12 months headline CPI is unchanged due to the drop in gasoline prices last year, but core CPI is up by 1.7 percent.

A cautionary note was struck by durable goods orders and by corporate profits. New orders for durable goods eased in February by 1.4 percent. The series is subject to volatility from both defense and nondefense aircraft orders. Headwinds are developing in durable goods manufacturing from reduced oil field activity and a strengthening dollar weighing on exports.

The third estimate of 2014Q1 real GDP growth was unrevised at 2.2 percent. Along with the GDP data we see that nominal corporate profits declined by 1.4 percent, weighed down by financial services and utilities.

We can end on an up note. Initial claims for unemployment insurance for the week ending March 21 decreased by 9,000 to hit 282,000, a very healthy number. Continuing claims for the week ending March 14 fell by 6,000 to hit 2,416,000, also a very good number.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 03-27-15.

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February Home Sales and Consumer Prices

Breakout Month for New Home Sales Despite Bad Weather

  • New Home Sales for February increased by 7.8 percent to an annual rate of 539,000 units.
  • February Existing Home Sales gained2 percent, to a 4,880,000 unit annual rate.
  • The Consumer Price Index for February increased by 0.2 percent as energy prices climbed.

On the heels of the March FOMC meeting, we see some data today that will help clear the path for the Federal Reserve, as they position themselves to begin increasing the fed funds rate this year. Data point number one is a breakout number for new home sales. As we are fond of saying, one month does not make a trend, but February new home sales increased by a stronger-than-expected 7.8 percent, to a 539,000 unit annual rate. This is the best monthly sales number since February 2008, and a clear upside breakout from the recent flat trend. We report seasonally adjusted numbers, but it is noteworthy that February’s non-seasonally adjusted sales rate also increased significantly, even with very bad weather in much of the country, and is about even with the non-seasonally adjusted rate from May 2014. Months’ supply of new homes for sale dipped to a tight 4.7 months’ worth, a positive signal for builders. The median sales price of a new home in February was up by 2.6 percent over the last year. The mix of new homes for sale may suppress median prices if more smaller or less expensive homes are being built. Existing home sales also increased in February, up by 1.2 percent to a 4,880,000 annual rate. Unlike new homes sales, existing home sales are not as depressed compared to historical norms. The months’ supply of existing homes for sale is also tight, at 4.6 months. The median selling price of an existing home is up 7.5 percent from February 2014. The combination of strong job growth, increasing home sales and tight supply is a strong positive signal for builders, affirming our expectations for increased residential construction activity this year.

Data point number two is the Consumer Price Index, which, for February, increased by 0.2 percent. With firmer gasoline prices, overall consumer inflation increased, reducing a potential conflict for the Federal Reserve.  Weak inflation, disinflation or outright deflation all make it politically more challenging for the Federal Reserve to increase interest rates despite the ample evidence of significant tightening in labor markets. The February CPI report bolsters the Fed’s view on the transient nature of low energy prices. Relatively stable crude oil prices combined with labor issues at U.S. refiners boosted gasoline prices in February. The overall CPI energy index was up by 1.0 percent for the month, after falling by 9.7 percent in January. Consumer food prices gained 0.2 percent in February. The core CPI (all items less food and energy) also increased by 0.2 percent for the month. Over the previous 12 months headline CPI is unchanged due to the drop in gasoline prices last year, but core CPI is up by 1.7 percent.

Market Reaction: U.S. equity markets are gaining. The 10-year Treasury Bond yield is up to 1.91 percent. NYMEX crude oil is up to $47.53/barrel. Natural gas futures are up to $2.82/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: New_Home Sales 03-24-15.

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