Comerica Bank’s Florida Index Unchanged

Comerica Bank’s Florida Economic Activity Index remained unchanged in March, at a level of 152.9. March’s index reading is 75 points, or 96 percent, above the index cyclical low of 78.1. The index averaged 138.0 in 2015, twenty and three-tenths points above the average for all of 2014. February’s index reading was also 152.9.

“After increasing for 23 consecutive months, the Comerica Florida Economic Activity Index was unchanged in March. Job growth is still pushing the economy forward, but that effect was countered in March by weaker tourism indicators. Four index components were positive in March, including payroll job growth, initial claims for unemployment insurance (inverted), house prices and sales tax receipts. Four components were negative, including state exports, housing starts, hotel occupancy and enplanements,” said Robert Dye, Chief Economist at Comerica Bank. “Real estate markets are generally tightening in the state; however, the Miami condo market is cooling and will weigh on construction indicators there this summer.”

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For a PDF version of the Florida Economic Activity Index click here: FloridaIndex_0516.

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Comerica Bank’s Arizona Index Levels-Out

Comerica Bank’s Arizona Economic Activity Index remained essentially flat in March, down by just 0.1 percentage points to a level of 109.7. March’s index reading is 33 points, or 43 percent, above the index cyclical low of 77.0. The index averaged 107.1 points for all of 2015, seven and two-fifths points above the average for full-year 2014. February’s index reading was 109.8.

“Our Arizona Economic Activity Index was little changed in March, as it was in January and February. One of the culprits cancelling out the gain from first quarter payroll job growth was residential construction. New home sales in Arizona remain a fraction of their pre-recession base-level which is estimated at about 40,000 per year, before doubling by early 2005. For the first quarter of 2016, new home sales for the state are estimated to be at a 16,000 unit annual rate. We continue to expect that retiring baby boomers will increase demand for new houses in Arizona throughout this year. Another positive for Arizona housing demand is the spillover effect from high-cost California markets,” said Robert Dye, Chief Economist at Comerica Bank. “With stronger new home sales, residential construction activity is expected to pick up, helping to boost the overall Arizona economy.”

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For a PDF version of the Arizona Economic Activity Index click here: ArizonaIndex_0516.

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Comerica Bank’s California Index Up Slightly

Comerica Bank’s California Economic Activity Index was slightly up in March to a level of 119.8. March’s reading is 36 points, or 42 percent, above the index cyclical low of 84.1. The index averaged 119.8 points for all of 2015, six and two-fifths points above the average for all of 2014. February’s index reading was 119.7.

“Our California Economic Activity Index was little changed in March, as the drag from weak tech stock prices counteracted the gain from payroll job growth. Five out of eight index components were up for the month, including payroll employment, exports, housing starts, defense spending and house prices. Hotel occupancy was neutral. Initial claims for unemployment insurance (inverted) weakened, as did the NASDAQ 100 stock price index. Our index shows that the leading edge of the California economy is cooling, while the base continues to show some momentum,” said Robert Dye, Chief Economist at Comerica Bank. “We expect that overall job growth and house price appreciation will keep the base of the California economy moving forward this year, barring a strong contraction in the tech sector.”

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For a PDF version of the California Economic Activity Index click here: CaliforniaIndex_0516.

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Comerica Bank’s Michigan Index Flattens as Auto Production Stabilizes

Comerica Bank’s Michigan Economic Activity Index declined in March, down 0.7 percentage points to a level of 127.2. March’s reading is 53 points, or 72 percent, above the index cyclical low of 74.0. The index averaged 124.3 points for all of 2015, seven points above the index average for 2014. February’s index reading was 127.9.

“Our Michigan Economic Activity Index dipped slightly in March and remains range bound since late last year. Jobs are still being added to the Michigan economy, but the state’s important manufacturing sector is facing three challenges. First, demand for manufactured goods from the oil and gas industry has collapsed. Second, the relatively strong dollar and tepid global demand are headwinds for export oriented manufacturing. Third, the auto sector increasingly looks like it is at the top of its cycle and will not significantly increase production from here,” said Robert Dye, Chief Economist at Comerica Bank. “Supporting the Michigan Index in March were payroll employment, house prices, auto production and sales tax receipts. Drags in the index in March came from exports, initial claims for unemployment insurance (inverted), housing starts and hotel occupancy.”

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For a PDF version of the Michigan Economic Activity Index click here: Michigan_0516.

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Comerica Bank’s Texas Index Shows Slower Rate of Decline

Comerica Bank’s Texas Economic Activity Index declined slightly in March, down 0.2 percentage points to a level of 91.9. March’s reading is 19 points, or 26 percent, above the index cyclical low of 72.8. The index averaged 97.7 points for all of 2015, seven and three-fifths points below the average for full-year 2014. February’s index reading was 92.1.

“Our Texas Economic Activity Index declined again in March, down for 16 out of the last 17 months. Weakness in the index stems from the reset to the Texas oil and gas industry due to very low commodity prices. In recent weeks, we have seen some firming in both crude oil and natural gas prices. If the current price regime is stable, with oil near $50 per barrel, then we would expect drilling rig counts to stabilize this year, and that overall business investment in crude oil and natural gas projects will stabilize, too, by year end. We already see in our Texas Index a slower rate of decline through the first three months of 2016, compared with the second half of 2015. Five out of eight index components were positive for March, including nonfarm employment, exports, unemployment insurance claims (inverted), house prices and state sales tax,” said Robert Dye, Chief Economist at Comerica Bank. “Negative index components for March were housing starts, rig count and hotel occupancy.”

TX Index 0516 For a PDF version of the Texas Economic Activity Index click here: TexasIndex_0516.

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April Income and Spending, March House Prices:

Consumer Spending Adds to Fed Rate Hike Expectations

  • U.S. Personal Income increased by 0.4 percent in April.
  • After inflation and taxes, Real Disposable Income gained 0.2 percent for the month.
  • Nominal Consumer Spending increased by a strong 1.0 percent in April.
  • Real Consumer Spending increased by 0.6 percent in April.
  • The S&P/Case-Shiller U.S. National Home Price Index gained 0.1 percent in March.

Income and spending data for April were solid and consistent with stronger GDP growth in Q2 after weak first quarter real GDP growth of 0.8 percent annualized (now revised up from the initial 0.5 percent estimate). Nominal personal income increased by 0.4 percent in April, driven by a 0.5 percent gain in wages and salaries, which account for about half of personal income. We expect to see moderate-to-strong wage and salary gains through the remainder of this year as job growth continues and wages increase as labor markets tighten up. The personal consumption expenditure price index increased by 0.3 percent in April, as the nondurable goods component gained 0.7 percent, reflecting firmer energy prices. The energy price sub-index was up 3.8 percent in April following a 1.1 percent gain in March. After adjusting for inflation and taxes, real disposable income increased by 0.2 percent for the month. Nominal consumer spending increased by a strong 1.0 percent in April as auto sales picked up to a 17.4 million unit annual rate after dipping to 16.6 in March. The durable goods component of nominal personal consumption expenditures gained 2.3 percent in April. Inflation-adjusted consumer spending was up by 0.6 percent for the month. With spending up more than income, the personal saving rate fell from 5.9 percent in March to 5.4 percent in April.

House prices continued to increase through March according to the S&P/Case-Shiller U.S. National Home Price Index, which increased by 0.1 percent in March. Over the previous 12 months, the national HPI was up by 5.2 percent. There is some evidence of cooler price growth in today’s house price report. However, supply remains tight in most markets and this will keep upward pressure on prices through the remainder of this year. Dallas posted an 8.5 percent year-over-year gain in March. Detroit prices were up 6.2 percent. Los Angeles, 6.5 percent. Miami, 6.2 percent. Phoenix gained 5.6 percent. San Diego was up 6.2 percent and San Francisco showed an increase of 8.5 percent over the year ending in March.

Today’s U.S. economic data releases bolster the odds of a Federal Reserve interest rate increase at the upcoming June 14/15 FOMC meeting. Recall the key passage from the minutes of the April 26/27 FOMC meeting, “Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee’s 2 percent objective, then it would likely be appropriate for the Committee to increase the target range for the fed funds rate in June.”

Market Reaction: U.S. equity markets opened with gains but have since declined. The yield on the 10-year Treasury bond is down to 1.85 percent. NYMEX crude is up to $49.85/barrel. Natural gas futures are up to $2.27/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: Personal Income 05-31-16.

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Comerica Economic Weekly

We had several U.S. economic data points released this week, but the big news came from a source that is often just background information: the minutes of the Federal Open Market Committee.

In the minutes of the FOMC meeting of April 26/27, released on Wednesday, we see a key passage that has reset expectations about the path for short term interest rates this year. The passage reads, “Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee’s two percent objective, then it would likely be appropriate for the Committee to increase the target range for the fed funds rate in June.”

The fed funds futures market reset on the news. Currently, according to the CME Group, there is a 30 percent chance for a fed funds rate increase on June 15, well up from the previous odds at about eight percent. In our view, the futures market is slightly understating the odds, which we would place at around 40-45 percent. The Fed spelled out three requirements for a June rate hike. So far, economic data IS consistent with an increase in real GDP growth in the second quarter, versus the weak first quarter. Also, we expect labor indicators to remain consistent with strengthening conditions. A key test of that will come on June 3rd with the release of the May employment data, which we believe will show stronger payroll job growth than the weaker-than-expected 160,000 from April. Also, inflation indictors ARE already warming up with firmer crude oil prices. The consumer price index for April increased at a strong 0.4 percent rate, boosted by the 3.4 percent increase in the energy component.

In addition to the June 3rd employment data release, there are other important dates between now and June 15. On May 27, Janet Yellen will be speaking at Harvard and she could take the opportunity to clarify her position. Also, on June 6, Yellen is speaking in Philadelphia. That will be her last currently scheduled public event before the blackout week ahead of the June 14/15 FOMC meeting.

The Fed is also concerned about the potentially destabilizing impact of the June 23 BREXIT vote in the United Kingdom. Today, 33 days until the referendum, the Financial Times poll of polls shows 47 percent for STAY and 41 percent for LEAVE. Jean-Claude Juncker, head of the European Commission, fired a warning shot today, saying that “deserters will not be welcomed back with open arms,” perhaps not entirely helpful to the cause.

The FOMC’s vote on interest rates will come eight days before the U.K.’s BREXIT vote. The FOMC will not have a clearer crystal ball on that important issue than the rest of us. But, as of today, it looks like BREXIT will be a non-issue, and a non-disruptor of global financial markets. That could change if there is an event that significantly pushes British popular opinion over the next five weeks.

Even with no fed funds rate hike in June, the odds of two rate hikes this year have increased.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 05-20-2016.

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Houston’s Energy Downdraft Persists Even with Firmer Oil Prices

The Texas economy generally, and Houston’s in particular, are feeling a persistent downdraft from the beleaguered energy sector. In March, Texas lost a net of 12,000 jobs, just the second monthly loss since late 2010. This kept the state’s unemployment rate steady at 4.3 percent, well below the national average of 5.0 percent for the month. We expect job growth to cool statewide, stepping down from a 2.4 percent annual gain in 2015, to about 1.5 percent this year. Real state GDP lost momentum in 2015Q3, the last data point available, when it barely increased at a 0.1 percent annual rate, following a weak 0.5 percent gain in 2015Q2. Over the four quarters from 2015Q4 through 2016Q3, we show a moderate decline in Texas real GDP, driven by the worst drilling conditions since the mid-1980s. Fortunately, oil prices have found some footing, increasing from the February low of $26 per barrel for West Texas Intermediate crude oil, to near $45 by late April. We expect drilling activity to stabilize by late summer as long as recent price gains are durable. However, even with some support from firming oil prices, the downdraft in the energy sector will continue well into the second half of this year, if not longer.

Job growth in Houston essentially flatlined in early 2015, allowing the metro area unemployment rate to increase from 4.35 percent in January 2015, to 4.83 percent this March. In February and March of this year we saw two consecutive net job losses. We expect that worsening trend to continue. Our Q2 forecast for the Houston metro area shows net job losses in the five quarters from 2016Q2 though 2017Q2. We expect the energy sector to continue to shed jobs through that period as companies consolidate, operations are scaled back and new investment is delayed or curtailed. Outside of the energy sector, jobs will be cut in construction and in areas that depend on discretionary consumer spending, including retail sales and restaurants. Fortunately, Houston’s strong demographic momentum has created many jobs that will likely not be cut, including education and healthcare-related employment.

To date, Houston’s downstream energy sector has been a key support to the area’s economy as the upstream operations were cut back. Going forward there will be less support as large construction projects are completed in 2017. Also, rising oil prices will start to squeeze margins for refiners, reducing their profitability. We expect the Houston metro area economy to stabilize by the second half of 2017. Beyond 2017, we forecast Houston to return to only moderate job and income growth.

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Click here for the complete Houston Regional Economic Update: Houston 2016Q2.

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Austin Leads Texas Economy

The Texas economy is feeling a persistent downdraft from the beleaguered energy sector. In March, Texas lost a net of 12,000 jobs, just the second monthly loss since late 2010. This kept the state’s unemployment rate steady at 4.3 percent, well below the national average of 5.0 percent for the month. We expect job growth to cool statewide, stepping down from a 2.4 percent annual gain in 2015, to about 1.5 percent this year. Real state GDP lost momentum in 2015Q3, the last data point available, when it barely increased at a 0.1 percent annual rate, following a weak 0.5 percent gain in 2015Q2. Over the four quarters from 2015Q4 through 2016Q3, we show a moderate decline in Texas real GDP, driven by the worst drilling conditions since the mid-1980s. Fortunately, oil prices have found some footing, increasing from the February low of $26 per barrel for West Texas Intermediate crude oil, to near $45 by late April. We expect drilling activity to stabilize by late summer as long as recent price gains are durable.

Although Texas as a whole is struggling from the energy sector havoc, the Austin area economy is standing out with a sustained outperformance of job growth over Texas since 2009. The area created over 40,000 jobs in the year ending 2016Q1 from a year ago. Consequently, the area’s unemployment rate fell to 3 percent by March 2016. Most of the jobs created in the interval came from trade, transportation, and utilities followed by leisure/hospitality and education/health services. Austin continues to be ranked among the top cities expected to prosper in the next decade and among the best cities for small business and job growth. We expect more companies to expand or relocate their businesses there over the next few years. In 2016Q1, companies like Comprehensive Healthcare Management, Hyperwallet Systems, Shopgate, Conde Nast, Eseye, and LKQ have relocated to Austin. Companies like Indeed, Mirna Therapeutics, Vast, Vyopta, Flint Hills Resources, Xeris Pharmaceuticals and many others have expanded their footprints in the area creating hundreds of jobs.

Austin’s real estate market is tight due to the need to accommodate its ever growing population and to satisfy growing office space demand. Single-family home sales grew by 9 percent in March 2016 from a year ago and median single-family home prices grew by 8 percent to $278,000 in the interval. Tighter vacancy rates to as low as 4 percent pushed multifamily apartment rents to grow by more than 6 percent in 2015Q4. Austin’s year-over-year office space vacancy rate dropped to 11.2 percent in 2016Q1 as the city’s positive net absorption decreased. We expect Austin’s home price growth to be around 7-8 percent in 2016/17.

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Click here for the complete Austin Regional Economic Update: Austin 2016Q2.

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San Antonio’s Economy Resilient Amid Energy Concern

The Texas economy is feeling a persistent downdraft from the beleaguered energy sector. In March, Texas lost a net of 12,000 jobs, just the second monthly loss since late 2010. This kept the state’s unemployment rate steady at 4.3 percent, well below the national average of 5.0 percent for the month. We expect job growth to cool statewide, stepping down from a 2.4 percent annual gain in 2015, to about 1.5 percent this year. Real state GDP lost momentum in 2015Q3, the last data point available, when it barely increased at a 0.1 percent annual rate, following a weak 0.5 percent gain in 2015Q2. Over the four quarters from 2015Q4 through 2016Q3, we show a moderate decline in Texas real GDP, driven by the worst drilling conditions since the mid-1980s. Fortunately, oil prices have found some footing, increasing from the February low of $26 per barrel for West Texas Intermediate crude oil, to near $45 by late April. We expect drilling activity to stabilize by late summer as long as recent price gains are durable.

Following the energy downdraft, oil drilling activity cooled substantially in the San Antonio area. The oil and natural gas rig count in the Eagle Ford basin declined by 67/68 percent year-over-year by the first week of May, 2016. As a result, the region lost over 2,000 mining/logging jobs in the interval. Despite the energy shock, the area’s economy added more than 27,000 jobs in the year ending 2016Q1. Consequently, the region’s unemployment rate fell to 3.6 percent by March 2016. About 85 percent of the jobs created in the interval came from the service sector. A number of IT, biotech, and manufacturing companies have relocated or expanded their presence in the area, taking advantage of a favorable business environment. A German medical device company, Cytocentrics, relocated its international base to San Antonio in 2015. The company is expected to add over 300 high paying jobs in the next five years with over $15 million investment. Root9B, Holt Cat, Indo-MIM, and Alorica are expanding their footprints in the area adding hundreds of jobs. Alorica, an IT/Business Process Outsourcing company, added more than 1,400 jobs in the past 12 months.

San Antonio’s real estate market is still solid with median home prices appreciating at the rate of 6 percent year-over-year by March 2016. In 2016Q1, the number of home sales increased by 10 percent compared to a year ago. According to RealtyTrac Inc., multifamily apartment rentals also climbed with an annual gross rental yield of 9.2 percent in Bexar County. Tighter home inventories and higher demand are driving the San Antonio’s real estate market. We expect the area’s home prices to grow by 5-7 percent in the remainder of 2016.

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Click here for the complete San Antonio MSA Regional Economic Update: SanAntonio 2016Q2.

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