Comerica Bank’s Florida Index Slightly Down in April

Comerica Bank’s Florida Economic Activity Index declined by 0.3 percentage points in April, to a level of 115.6. April’s index reading is 35 points, or 44 percent, above the index cyclical low of 80.4. The index averaged 114 in 2013, nine points above the average for all of 2012. March’s index reading was revised down to 115.9.

“Our Florida Economic Activity Index dipped in April, continuing a soft entry into 2014. Tourism activity, as indicated by enplanements and hotel occupancy, may be levelling out after a strong run through the end of 2013. Fortunately, recent job growth has been above the U.S. average. As of April, payroll employment in the Sunshine State was up 3.3 percent from a year earlier, well above the 1.7 percent increase for the U.S. as a whole,” said Robert Dye, Chief Economist at Comerica Bank. “Firming property markets, plus expanding U.S. and global economies will keep the Florida economy on a growth track through the second half of the year.”

FL Index 0614

For a PDF version of the Florida Economic Activity Index click here: FloridaIndex_0614.

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Comerica Bank’s Michigan Index Declines for the Sixth Consecutive Month in April

Comerica Bank’s Michigan Economic Activity Index eased in April, declining 0.3 percentage points to a level of 119.8. April’s reading is 48 points, or 67 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. March’s index reading was revised down to 120.1.

“Our Michigan Index dipped slightly in April, extending its slide to the sixth consecutive month. The Michigan Economic Activity Index shows that the state economy is stagnating despite gains in U.S. auto sales, progress toward resolving the City of Detroit’s financial problems, and some improvement to housing markets statewide. At a time when most other states are showing consistent job gains, payroll employment in Michigan has flat-lined over the past year,” said Robert Dye, Chief Economist at Comerica Bank. “We expect to see gains for Michigan’s marquis industries for the remainder of the year, but that may not translate into significant improvement in Michigan labor markets.”

MI Index 0614

For a PDF version of the Michigan Economic Activity Index click here: Michigan0614.

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May Home Sales, June Consumer Confidence, April Case-Shiller House Prices

Both New and Existing Home Sales Improve, Bolstering Expectations for a GDP Rebound

  • New Home Sales for May jumped by 18.6 percent to reach a 504,000 unit annual rate.
  • Existing Home Sales for May increased by 4.9 percent, to an annual rate of 4.89 million units.
  • The Conference Board’s Consumer Confidence Index increased to 85.2 in June.
  • The Case-Shiller 20-City Composite Home Price Index for April was up 10.8 percent from a year ago.

Both new and existing homes sales improved in May, bolstering the case for a Q2 rebound in GDP, supported by more confident U.S. households. A key element of our view that U.S. economic activity is rebounding after a dismal Q1, is ongoing improvement in residential real estate markets, evidenced by gains in home sales, construction and prices. New home sales for May jumped well past expectations, increasing by 18.6 percent to reach a 504,000 unit annual rate. Overall market conditions for new homes are tight. The months’ supply of new homes fell to 4.5 months’ worth in May. The jump in May new home sales will likely be followed by a correction in June, but it is a number worth crowing about. It re-establishes the upward trend for new homes sales which were range-bound in 2013. Also, we have not breached the 500,000 unit new home sales mark since May 2008. Existing home sales for May increased by 4.9 percent to hit an annual rate of 4.89 million units. The months’ supply of existing homes ticked down to 5.6 after jumping to 5.7 in April. Credit availability remains a limiting factor for the housing market and so reports of easing conditions to come are good news for future home sales.

According to the April Case-Shiller 20-City Composite Home Price Index, house price gains were softer than expected. The monthly gain for the 20-City series was 0.2 percent, pushing the year-over-year gain to 10.8 percent. Four out of 20 cities, Cleveland, New York, San Diego and Washington, posted declines for the month. On a year-over-year basis, Las Vegas is the leader, up 18.8 percent. Dallas is up 9.3 percent. Detroit 15.0 percent. Los Angeles 14.0 percent. Miami 14.7 percent. Phoenix 9.8 percent. San Diego 15.3 percent. San Francisco 18.2 percent.

The Conference Board’s Consumer Confidence Index increased again in June, to 85.2 percent. Though still somewhat muted by historical standards, the June data point is the best since January 2008. The Federal Reserve Bank of Richmond reported mild growth in regional manufacturing activity in June.

Market Reaction: U.S. equity markets are up. The 10-Year Treasury bond yield is down to 2.61 percent. NYMEX crude oil is up to $106.40/barrel. Natural gas futures are up to $4.50/mmbtu.

Economic Alert 062414

For a PDF version of this Comerica Economic Alert click here: New Home Sales 06-24-14.

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Comerica Bank’s California Index Climbs in April

Comerica Bank’s California Economic Activity Index jumped in April, increasing 4.0 percentage points to a level of 113.2. April’s reading is 41 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. March’s index reading was revised up to 109.2.

“Our California Economic Activity Index re-established its upward trend in April after declining for three consecutive months. Payroll job growth for the state remains above the U.S. average, fueled by gains in high-tech industries and strengthening housing markets. Residential building permits were particularly strong in April, helping to elevate the index,” said Robert Dye, Chief Economist at Comerica Bank. “We expect the California economy to continue to strengthen through the remainder of this year, and we expect our index to retain its overall upward trajectory.”

CA Index 0614

For a PDF version of the California Economic Activity Index click here: CaliforniaIndex_0614.

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Comerica Bank’s Texas Index Improves in April

Comerica Bank’s Texas Economic Activity Index advanced 1.4 percentage points in April to a level of 109.2. April’s reading is 38 points, or 52 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. March’s index reading was revised up to 107.8.

“Our Texas Index increased in April, supported by a broad range of positive indicators for the state. Payroll employment growth continues to be strong in most major metropolitan areas, including Dallas/Fort Worth, Houston, Austin and San Antonio. Residential construction activity is picking up to meet the strong demographic demand and drilling activity continues at a robust rate,” said Robert Dye, Chief Economist at Comerica Bank. “We expect to see the strong growth in the Texas economy to continue through the second half of this year and beyond.”

TX Index 0614

For a PDF version of the Texas Economic Activity Index, click here: TexasIndex_0614.

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Comerica Economic Weekly

The Federal Reserve dominated this week’s U.S. economic headlines as they did the expected, more tapering and no change to interest rate policy. The Federal Open Market Committee policy announcement on Wednesday called for a reduction in asset purchases to $35 billion beginning in July and no change to near-zero interest rate policy. In her post-announcement press conference, FOMC chairwoman Janet Yellen said that the Fed would be issuing a revised set of exit (from extraordinary monetary policy) principles later this year. The Yellen Fed has two significant challenges ahead of it. The first is the timing and the execution of the pivot from extraordinary monetary policy to something that could be called the new new normal. The second challenge is how to communicate about the pivot. The pivot and eventual interest rate lift-off is complicated by the proliferation of policy levers that the Fed may employ, including the fed funds rate, the interest rate on excess reserves, term deposits and overnight reverse repurchase agreements.

U.S. economic data remain consistent with a Q2 GDP rebound and ongoing moderate economic expansion through the second half of the year.

Industrial production increased by 0.6 percent in May as manufacturing rebounded from a sluggish April. Overall capacity utilization increased to 79.1 percent, still below the 40-year average.

Residential construction activity eased in May, following a strong April. Overall trends still look positive. Housing starts declined by 6.5 percent for the month, to hit an annual rate of 1,001,000 units. Permits dipped by 6.4 percent to hit a 991,000 unit annual rate.

The Conference Board’s Leading Index gained 0.5 percent in May, its fourth consecutive gain. The Coincident and the Lagging Indexes were also up.

Initial claims for unemployment insurance for the week ending June 14 decreased by 6,000 to hit 312,000. Continuing claims fell by 54,000 for the week ending June 7 to reach 2,561,000. UI claims data remain consistent with ongoing improvement in labor market conditions.

 The Federal Reserve Bank of Philadelphia’s Business Outlook Survey increased in June, showing a notable improvement in the future activity index. The New York Fed’s Empire State Manufacturing Survey for June also showed solid manufacturing conditions, maintaining the strong index level from May.

The week’s most intriguing data point was the May Consumer Price index, up a strong 0.4 percent, the third consecutive step up for consumer price inflation. Over the previous 12 months, the headline CPI is now up 2.1 percent and core CPI (less food and energy) is up 2.0 percent. While the flames of inflation are not yet burning, the embers are warming up.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 06-20-14.

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Comerica Economic Weekly

Chaos in Iraq is driving oil prices up. U.S. oil production is surging, but crude oil markets are global and the U.S. is expected to remain a net energy importer for several years to come. In 2013, the U.S. satisfied 84 percent of its energy demand with domestic sources. The NYMEX price for WTI crude has elevated to near $107/barrel. Gasoline prices can be expected to increase as well, adding yet another glowing coal to warm up inflation indicators.

Other U.S. data for the week were consistent with our view of a moderate Q2 GDP rebound following a dismal Q1.

Retail sales increased by a less-than-expected 0.3 percent in May. Despite stronger auto sales, non-auto retail sales might be hitting a budget constraint after very high winter heating bills and a surge in consumer spending on healthcare related to the roll-out of the Affordable Care Act.

The Producer Price Index for Final Demand fell in May by 0.2 percent after strong gains through March and April. On a year-over-year basis, the index is up 2.0 percent. We expect energy to be a factor in the June and July indexes.

Business inventories were up 0.6 percent in April. The solid start to Q2 inventories suggests that most of the drag from the early 2014 inventory correction is behind us, supportive of Q2GDP.

Labor data continues to improve. Job openings increased in April and the hiring rate remained strong. Initial claims for unemployment insurance for the week ending June 17 ticked up by 4,000 to hit 317,000, still a good number.

Mortgage applications jumped in early June, good news for summer home sales.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 06-13-14.

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June 2014, Comerica U.S. Economic Update

Q2 GDP Rebound Is in Gear, Green Light for 2014H2

The confluence of events that added up to –1.0 percent real GDP growth in 2014Q1 will not be repeated. The weather has normalized. After a sizeable inventory correction in Q1, we expect to see less drag from inventories going forward. The drag on federal spending from the budget sequester is winding down. Even though Q2 international trade got off to a weak start, we expect the fundamental changes to the U.S. energy sector, and the related strengthening of the U.S. manufacturing sector, to exert a positive influence on the balance of trade going forward. We forecast real GDP growth for the current quarter to rebound at a moderate 2.6 percent annualized rate, and then to improve to about 3.0 percent for Q3 and Q4 of this year.

Recent economic indicators are consistent with this view. The May ISM reports for manufacturing and non-manufacturing industries both point to a solid second quarter. After revision, the ISM Manufacturing Index for May increased to 55.4, showing that manufacturing conditions are generally improving. There are some exceptions. U.S. Steel announced this week that it would temporarily close plants in Texas and Pennsylvania, blaming unfair competition from illegally priced imports of tubular steel. The ISM Non-Manufacturing Index for May increased to 56.3 percent. Light vehicle sales for May were better than expected, increasing to a 16.8 million unit annual pace, with help from both cars and light trucks. This was the strongest reading for auto sales since July 2006. Although we expect to see a correction in the June sales data, the trend for light vehicle sales for the remainder of this year looks positive.

May payroll job growth came in slightly-better-than expected at +217,000. The May jobs numbers are a double shot-in-the-arm for the U.S. economy. First, they confirm a durable rebound from this winter’s weather-induced poor performance. Second, May’s job growth puts U.S. payroll employment at a new all-time high. May’s total payroll employment of 138,463,000 is 98,000 jobs higher than the January 2008 pre-recession peak. The May unemployment rate was steady at 6.3 percent.

With conditions improving, the Federal Reserve will look past the temporarily dismal performance of Q1 and continue to taper their asset purchase program. We expect to see another $10 billion reduction in the pace of asset purchases announced at the conclusion of the upcoming June 17/18 FOMC meeting. The Fed will be finished with active QE by the end of this year. We expect to see no changes to the near-zero interest rate policy this year. For more discussion on the Federal Reserve and European Central Bank, please see page 2.

For a PDF version of the complete Comerica U.S. Monthly with additional commentary, tables, and charts, click here: USEconomicUpdate0614.

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Comerica Economic Weekly

Solid U.S. economic data this week adds to our confidence that Q2 GDP growth will rebound from the weak first quarter.

May payroll job growth came in slightly-better-than expected at +217,000. The May jobs numbers are a double shot-in-the-arm for the U.S. economy. First, they confirm a durable rebound from this winter’s weather-induced poor performance. Second, May’s job growth puts U.S. payroll employment at a new all-time high. May’s total payroll employment of 138,463,000 is 98,000 jobs higher than the January 2008 pre-recession peak. The May unemployment rate was steady at 6.3 percent.

The May ISM reports for manufacturing and non-manufacturing industries both point to a solid second quarter. After revision, the ISM Manufacturing Index for May increased to 55.4, showing that manufacturing conditions are generally improving. There are some exceptions. U.S. Steel announced this week that it would temporarily close plants in Texas and Pennsylvania, blaming unfair competition from illegally priced imports of tubular steel. The ISM Non-Manufacturing Index for May increased to 56.3 percent.

Light vehicle sales for May were better than expected, increasing to a 16.8 million unit annual pace, with help from both cars and light trucks. This was the strongest reading for auto sales since July 2006. Although we expect to see a correction in the June sales data, the trend for light vehicle sales for the remainder of this year looks positive.

The U.S. international trade gap for April widened unexpectedly to -$47.2 billion. Net exports decreased marginally by $0.3 billion for the month. Net imports gained $2.7 billion in April. Trade data can be volatile on a month-to-month basis. We expect to see a smaller trade gap as a percentage of GDP going forward, supported by a more favorable balance for energy, in particular, and also for some manufactured goods. Nonetheless, the weak start to Q2 trade data suggests that we could see a net drag from trade on Q2 GDP.

The most disappointing numbers of the week came from the Q1 productivity and unit labor cost report (ULC). Nonfarm business productivity for the first quarter of 2014 decreased at a 3.2 percent annual rate. We know that both output and employment data for Q1 were influenced by the unusually bad winter weather, so the Q1 productivity and ULC data come with an asterisk. ULC for Q1 increased at a 5.7 percent annual rate. On a year-ago basis, ULC was up a tamer 1.2 percent in Q1. So, that does not look like a big push to inflation.

The European Central Bank expanded their monetary policy tool bag by dropping the interest rate it charges on overnight bank deposits to –0.1 percent on Thursday, with the goal of encouraging lending. That, and other policy measures are designed to work in concert with a reduction in its main lending rate to 0.15 percent. The recovery in Europe is uneven and inflation is too low.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 06-06-14.

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May U.S. Employment

U.S. Payroll Employment Reaches New All-Time High, May U. Rate Steady at 6.3 Percent

  • The May Payroll Employment Survey showed a gain of 217,000 jobs. April was revised down slightly.
  • The Unemployment Rate for May was unchanged at 6.3 percent.
  • Average Hourly Earnings increased by 0.2 percent in May and are up 2.1 percent over the last year.

May payroll job growth came in slightly-better-than expected at +217,000 for the month. Revisions to March and April were minimal. The May jobs numbers are a double shot-in-the-arm for the U.S. economy. First, they confirm that the rebound from the weather-induced poor performance over the winter is durable. Second, May’s job growth puts U.S. payroll employment at a new all-time high. May’s total payroll employment of 138,463,000 is 98,000 jobs higher than the January 2008 pre-recession peak. The unemployment rate held steady in May at 6.3 percent. The household employment survey, which feeds into the unemployment rate, showed a gain of 145,000 jobs. The payroll survey and the household survey are reasonably well correlated over the medium term. But on a month-to-month basis they can diverge significantly. The civilian labor force increased by 192,000 workers in May after showing a big 806,000 worker drop in April. The labor force numbers remain somewhat quirky, reducing the reliability of the unemployment rate as a measure of central tendency of the U.S. labor market. Average hourly earnings were up 0.2 percent in May, and up 2.1 percent over the previous 12 months. The rise in earnings over the previous year is not inflationary. We expect to see average hourly earnings trending up over the year ahead. This may put more pressure on overall inflation given recent weak productivity growth. If productivity growth renormalizes, then the expected rate of wage growth in the near-term is not inherently inflationary. Average weekly hours for all workers has been relatively steady over the last two years, near the May level of 34.5.

Construction employment was up 6,000 in May. We except to see ongoing gains as both residential and commercial projects increase. Manufacturing employment gained 10,000 jobs in May. The steady improvement in manufacturing employment, enduring into mid-cycle, has been a pleasant surprise. Wholesale trade gained 9,900 net new jobs in May, while retail was up 12,500 jobs. Transportation and warehousing employment was up 16,400. Financial services job growth is still flattish, up only 3,000 for the month. Sizeable job growth came from business and professional services, up 55,000 in May. Education and healthcare added a strong 63,000 net new jobs. Leisure and hospitality employment was up nicely by 39,000. The government sector is still stuck in neutral due, in part, to the federal spending sequester. The government sector added 1,000 net jobs in May.

Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is down to 2.56 percent. NYMEX crude is up to $102.81/barrel. Natural gas futures are down to $4.69/mmbtu.

Economic Alert 060614

For a PDF version of this Comerica Economic Alert click here: Employment 06-06-14.

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