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.”

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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.”

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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.”

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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.

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

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November Home Sales, Income and Spending, Durable Goods Orders, Q3 GDP

Naughty and Nice, Home Sales Stutter but GDP Roars Ahead

  • New Home Sales for November declined by 1.6 percent to an annual rate of just 438,000 units.
  • November Existing Home Sales fell by 6.1 percent, to a 4,930,000 unit annual rate.
  • Personal Income in November increased by 0.4 percent. Real disposable income gained 5 percent.
  • Consumer Spending increased by 0.6 percent. Real spending was up 7 percent.
  • New Orders for Durable Goods dipped in November by 0.7 percent.
  • Third Quarter real GDP growth was revised up significantly to a 5.0 percent annualized rate.

Most economic data at year-end is showing strong momentum and stock prices are hitting new records. Third quarter real GDP growth was revised up significantly, to a 5.0 percent annualized rate, the strongest growth rate since 2003Q3. The lump of coal in the Christmas stocking is home sales. Existing home sales for November eased by 6.1 percent to a 4,930,000 unit annual rate, the weakest sales rate since last May. Existing home sales dipped across all four census divisions in November. On a month-to-month basis, median sales prices dipped too, down 1.1 percent for the month, but still up 5.0 percent from a year ago. The months’ supply stayed tight at 5.1 months’ worth, suggesting that tight supply is a constraint on existing home sales. Sales of new homes also fell in November. They were down by 1.6 percent to a 438,000 unit annual rate. Sales of new homes have been range bound for two years, through 2013 and 2014, and this is keeping home building subdued. We expect stronger labor markets, increasing consumer confidence, easing credit standards and pent-up demand to be positive factors for new home sales in 2015.

U.S. personal income increased by 0.4 percent in November, the strongest monthly increase since June. Solid job growth and increasing pay boosted wages and salaries by 0.5 percent for the month. After adjusting for inflation (in this case deflation) and taxes, real disposable income gained 0.5 percent, the best increase since last February. They got it and they spent it, and then some. Nominal consumer spending increased by 0.6 in November, paced by strong car sales. Real spending increased by 0.7 percent. The personal consumption expenditures price index fell by 0.2 percent in November as energy prices rolled back.

New orders for durable goods eased by 0.7 percent in November, held down by diving defense aircraft orders. These surged in October, by 43.5 percent, so the November numbers look like a normal correction. Shipments were also down in November, by 0.4 percent, after falling by 0.1 percent in October. Soft shipment numbers for October and November suggest that inventory accumulation in Q4 may be a drag on GDP growth for the soon to be complete fourth quarter.

The third estimate of 2014Q3 real GDP was revised up significantly to show a 5.0 percent annualized growth rate. Both consumer spending and business fixed investment estimates were boosted. A strong GDP report, sub-$2 gasoline in many areas and a surging stock market are all positives for consumer confidence at year end. Add in robust job growth and we have all the ingredients for solid holiday sales.

After stuffing all of the recent U.S. data into the economic sausage machine it looks like we will be revising our expectations of the Q4 real GDP growth upward, to around 2.0 to 2.5 percent. However, we continue to expect more moderate growth for 2014Q4 real GDP, after two very strong quarters in Q2 and Q3. Defense spending and inventories are shaping up to be drags on Q4, and consumer spending is unlikely to add much to growth in Q4 given that it was strong in Q3.

Market Reaction: U.S. equity markets opened with gains. Treasury yields are up at the long end of the yield curve. NYMEX crude oil is up to $56.20/barrel. Natural gas futures are sliding to $3.18/mmbtu.

This is the last Comerica Economics publication of the year. See you in 2015!

For a PDF version of this Comerica Economic Alert click here: New_Home Sales 12-23-14.

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Comerica Economic Weekly

We approach the end of the year with the price of oil, the health of the Russian economy and the Federal Reserve as hot topics this week. WTI crude oil traded in a range of about $54 to $58 per barrel this week. This hardly represents a firm bottom against the now six-month slide in global oil prices. We see the balance of risks on oil prices weighted to the downside given three fundamental assumptions. (1) Saudi Arabia continues to protect its market share, and therefore cuts prices in order to maintain sales volume. (2) Global oil production increases before it decreases. (3) Global oil demand does not rapidly increase even with rapidly-falling prices.

The oil and gas company known as Russia is buckling under the weight of economic sanctions and weak oil prices. We expect to see some volatility in global financial markets because of this, but we do not expect economic and financial events in Russia to have enough weight to grow into a significant headwind for the U.S. economy.

Looking past the transitory deflation due to lower oil prices and global economic and geopolitical uncertainty, the Federal Reserve took another step in its pivot toward policy normalization this week by changing its forward guidance on interest rates. “Patient” replaces “considerable time.” In her post-policy announcement press conference, FOMC chairwoman Janet Yellen bracketed the timing of interest rate lift-off by saying that the FOMC expects to see interest rate lift-off no earlier than April 2015, and no later than December 2015. Our expectations remain centered on a mid-year 2015 date for interest rate lift-off.

U.S. home construction remains range-bound near the 1 million units per year mark. Even though homebuilder sentiment is improving, builders will not get ahead of lackluster sales. Housing starts in November dipped by 1.6 percent to a 1,028,000 unit pace.

Industrial production, by contrast, had a banner month in November. The headline industrial production index increased by a strong 1.3 percent. Motor vehicle assemblies surged by 7.9 percent in November, supported by the strong 17.2 million unit sales rate for the month.

In the second week of December the Baker Hughes rotary rig count for the U.S. had the biggest one-week slide since March 2013, falling by 27 rigs to 1,893. Still a strong number, but clearly off the September peak.

The Conference Board’s Leading Economic Index increased by 0.6 percent in November. The Coincident Index and the Lagging Index were also up for the month.

The headline consumer price index eased by 0.3 in November as crude oil prices slid and gasoline followed suit. According to AAA, the national average price for regular unleaded is now down to $2.45 per gallon.

Initial claims for unemployment insurance fell by 6,000 for the week ending December 13, to hit 289,000. Continuing claims for December 13 fell by 147,000.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 12-19-14.

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November Leading Indicators, CPI, December UI Claims, Fedspeak

Solid Economic Data Supports Another Step in the Fed’s Pivot

  • The Leading Economic Index for November gained 0.6 percent.
  • The Consumer Price Index for November fell by 0.3 percent with lower gasoline prices.
  • Initial Claims for Unemployment Insurance fell by 6,000 for the week ending December 13 to 289,000.
  • FOMC keeps near-zero rates, tweaks forward guidance.

Even with higher financial market volatility and an increasing sense of uncertainty about the global economy and geopolitics, U.S. economic data continues to show momentum at year-end that will carry through to early 2015. According to yesterday’s FOMC monetary policy statement, U.S. economic activity is expanding at a moderate pace. Consistent with that analysis, the Conference Board’s Leading Economic Index increased by 0.6 percent in November. Eight out of 10 components of the LEI increased for the month. Of the two decreasing components, initial claims for unemployment insurance have since resumed their declining trend, and residential building permits are expected to rise through 2015. The Coincident Index and the Lagging Index were also up for the month.

Overall consumer prices eased in November as crude oil prices slid and gasoline followed suit. The consumer price index fell by 0.3 percent last month as the energy sub-index eased by 3.8 percent. According to AAA, the national average price for regular unleaded is now down to $2.48 per gallon. Many service stations in Texas are already below $2.00 per gallon. Food prices gained a moderate 0.2 percent in November. Core CPI (all items less food and energy) was up a modest 0.1 percent for the month, and is up 1.7 percent over the previous year. Core prices are being supported by gains in house prices and rents. Weaker year-over-year inflation may potentially complicate the Federal Reserve’s timing of interest rate lift off, but for now the Fed sees the deflationary effect of falling energy prices as a transitory phenomenon. They are looking through currently lower energy prices and seeing the potential for stronger wage inflation in 2015 as labor markets continue to tighten.

Mid-December data says that labor markets are indeed still tightening. Initial claims for unemployment insurance fell by 6,000 for the week ending December 13, to hit 289,000. Continuing claims were down sharply, by 147,000, to hit 2,373,000 for the week ending December 6.

Yesterday’s Federal Reserve policy announcement and press conference by FOMC chairwoman Janet Yellen confirmed another step in the Fed’s pivot toward monetary policy normalization. As expected, the FOMC kept the fed funds rate near-zero. Also, the FOMC amended its forward guidance on interest rates, but in doing so they retained the “considerable time” phrase. In her post-FOMC announcement press conference, Yellen made four important statements regarding interest rate lift-off. (1) Almost all FOMC participants believe that it will be appropriate to see interest rate lift-off in 2015. (2) The FOMC is unlikely to begin interest rate normalization for at least the next couple of meetings. (3) The three prerequisites for interest rate lift-off are core inflation near current levels, inflation expectations remain anchored and improvement in labor market metrics. (4) Yellen stressed that when interest rate lift-off does occur there should not be an expectation of a measured pace of rate increases, namely, 25 basis points per meeting. There will be no “measured pace”. She stressed that the trajectory of the fed funds rate will be data dependent. We continue to expect interest rate lift-off near mid-year 2015.

Market Reaction: Equity markets like the economic data and they like the Fedspeak. Equity prices are up sharply in early trading. The 10-Year Treasury bond yield is up to 2.21 percent. NYMEX crude oil is showing some stability, up to $56.11/barrel. Natural gas futures are down to $3.64/mmBTU.

For a PDF version of this Comerica Economic Alert click here:

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Lower Oil Prices to Boost Southern California

Lower oil prices will support the Southern California economy. West Texas Intermediate spot prices have taken a sharp slide from $102 per barrel in June down to near $55 per barrel in mid-December. Lower oil prices are expected to persist heading into 2015, shifting economic activity from oil producing areas such as Texas, to energy consuming economies such as California. The lower price of oil will also support Southern California manufacturing which employs over 690,000 workers. Lower gas prices will increase non-energy spending amongst consumers, supporting the region’s service industries and retail sales in 2015.

Southern California housing markets remained muted as housing starts are set to improve by just 2.0 percent in 2014. Institutional buyers began exiting the region’s housing market in 2013, leaving traditional home buyers to fill the void. Thus far that has not happened as October home sales were down 4.4 percent from a year ago according to CoreLogic DataQuick. One source of untapped home demand is the millennials. Many U.S. young professionals are flocking to the nation’s major metro areas. However, millennials are the newest to the workforce, have lower levels of savings, high student debt obligations and are attempting to enter some of the most expensive markets for homeownership. As sustained income growth occurs and credit standards ease, millennials are expected to gradually increase home buying, supporting area housing markets.

We expect port activity to increase due to a strong U.S. economic outlook in 2015. The Port of LA indirectly supports around 896,000 jobs in the region and the Port of Long Beach supports 316,000. The twin ports’ total container activity was up a combined 3.0 percent from a year ago in October. The boost from the improving U.S. economy is balanced against the risk of competing ports as the expansion of the Panama Canal is completed in 2015 and opened in early 2016. The expansion will allow shippers to bypass West Coast ports.

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Click here for the complete Southern California Regional Economic Update: SouthernCA 2014Q3.

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