June U.S. Employment, May International Trade

Robust Job Growth Signals Ongoing Expansion for U.S. Economy

  • The June Payroll Employment Survey showed a gain of 288,000 jobs. April and May were revised up.
  • The Unemployment Rate for June fell to 6.1 percent.
  • Average Hourly Earnings increased by 0.2 percent in June and are up 2.0 percent over the last year.
  • The U.S. International Trade Gap narrowed in May to -$44.4 billion.
  • Initial Claims for Unemployment Insurance inched up by 2,000 for the week ending June 28, to 315,000.

For the fifth consecutive month, U.S. payroll employment has increased by more than 200,000 jobs. June payrolls increased by a robust 288,000 jobs. These are strong mid-cycle numbers, comparable to the height of the previous business cycle in 2005 and 2006. The June unemployment rate fell to 6.1 percent. We are seeing a decline in the unemployment rate of about 0.1 percentage points every two months, which puts us on pace for a 5.8 percent unemployment rate at the end of this year. The average workweek for June was 34.5 hours, unchanged for the fourth consecutive month. Average hourly earnings were up 0.2 percent for the month and 2.0 percent over the previous 12 months. As long as productivity growth gets back on track, this is not inherently inflationary. However, we expect to see more pressure on wages as labor markets continue to tighten up through the remainder of this year and into next year.

Job gains were widespread across industries. Construction added 6,000 jobs in June. Manufacturing employment was up by 16,000 jobs, with gains concentrated in transportation equipment. Wholesale trade gained 15,100 jobs while retail was up a strong 40,200. Transportation and warehousing added 16,600 jobs in June. Information was up 9,000. Financial services gained 17,000 jobs. Business and professional services employment was up a solid 67,000 jobs in June. Education and healthcare added 38,000. Leisure and hospitality services added 39,000 jobs for the month. Government employment was up by 26,000 in June, somewhat stronger than recent average performance. It looks like the bad winter weather may have extended school years into June, temporarily boosting local government employment. If so, we should see a correction in the July data. Even if we net out 18,000 local government education jobs, the net gain of 270,000 jobs for June is a strong number. Fun fact: We have already added more payroll jobs in the current expansion than we did in the last one, from June 2003 through January 2008.

Initial claims for unemployment insurance for the week ending June 28 ticked up by 2,000 to hit 315,000. Continuing claims for the week ending June 21 increased by 11,000 to hit 2,579,000. Claims numbers remain consistent with ongoing improvement to overall labor market conditions.

The U.S. international trade gap narrowed in May, to $44.4 billion. Exports increased by $2.0 billion for the month, while imports decreased by $0.7 billion. For April and May, the inflation-adjusted balance of trade for goods is below the first quarter average, implying a small drag from trade on Q2 GDP.

Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is up to 2.66 percent. NYMEX crude is down to $103.82/barrel. Natural gas futures are down to $4.34/mmbtu.

Economic Alert 070314

For a PDF version of this Comerica Economic Alert click here: Employment 07-03-14.

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June ADP Employment and Auto Sales, May Factory Orders

Workers Get Jobs and Buy Cars, Equity Markets Rally, Happy Fourth!

  • June’s ADP Employment Report showed a robust increase of 281,000 private-sector jobs.
  • June Auto Sales revved up to a 17.0 million unit annual rate.
  • Factory Orders decreased by 0.5 percent in May, but remain consistent with a Q2 GDP rebound.

U.S. labor markets are improving quickly. Employed and more confident consumers are buying cars. Equity markets are showing their enthusiasm, adding to wealth and confidence. Tomorrow, we will get the official count of jobs added in June. Right now it looks like we are set to fire up the Fourth of July barbeques with a balmy economic tailwind, a welcomed change from a brutal winter. The ADP employment report for June reported a robust net increase of 281,000 private-sector jobs for the month, well beyond consensus expectations of about 205,000 jobs. Small businesses, less than 50 employees, added the bulk of the new positions, up 117,000 jobs. So from this very high-level view we can see no obvious drag from the rollout of the Affordable Care Act, nor from the threat, or actuality, of higher minimum wages. Based on today’s data, we will increase our expectations for tomorrow’s release of the official BLS payroll numbers, to a guess of about 235,000 jobs for June. We continue to expect the unemployment rate to decrease to 6.2 percent.

Auto sales also shifted up a gear in June, reaching a 17.0 million unit annual rate for the first time since July 2006. While there is certainly potential to see auto sales improve from here, we are getting into the range of the plateau in sales from the previous expansion. The drop in auto sales to a 9 million unit sales rate during the depths of the recession implies that there is still some upside potential for auto sales, especially as household income and household wealth continue to improve. On the other hand (you knew that was coming), the drop in auto sales through the last recession was no worse than the drop we saw through the back-to-back recessions of the early 1980s. The monthly light vehicle sales rate did hit some lofty peaks following that recession, reaching 21.2 million in September 1986. But total annual sales peaked at a more sedate 16.1 million in 1986.

New orders for manufactured products fell by 0.5 percent in May. This broke a three-month improving streak. Factory orders remain consistent with moderate business investment through Q2, supportive of a turnaround in real GDP growth from the dismal -2.9 percent in Q1. We will be cooking up our July U.S. economic outlook early next week. Right now, it looks like we will be close to 2.5 percent real GDP growth for the just completed second quarter.

Market Reaction: U.S. stock markets are up in early trading. The yield on 10-Year Treasury bonds is up to 2.61 percent. NYMEX crude oil is down to $105.17/barrel. Natural gas futures are down to $4.36.

Economic Alert 070214

For a PDF version of this Comerica Economic Alert click here: ADP 07-02-14.

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June ISM Manufacturing, May Pending Home Sales, Construction Spending

U.S. Manufacturing Logs Another Strong Month, Europe Not So Much

  • The ISM Manufacturing Index for June ticked down to a still-strong 55.3 percent.
  • The Pending Home Sales Index for May increased by 6.1 percent.
  • May Construction Spending increased by 0.1 percent, as private residential projects dipped.

The U.S. manufacturing sector remains healthy, contributing to a rebound from weak first quarter GDP. The ISM manufacturing index eased slightly to a still-strong reading of 55.3 percent. A key manufacturing index for the Eurozone dipped closer to the break-even point in May. Meanwhile the British manufacturing purchasing managers’ index showed strong gains through the second quarter, highlighting the variable speed economic expansion framing the Atlantic. The Pacific Rim looks a little steadier as China registered the highest level in its key manufacturing index this year. The Chinese “mini-stimulus” package appears to be gaining traction. Japan showed a drop in business confidence in the second quarter, in reaction to the consumption tax increases that came as part of Prime Minister Abe’s “third arrow.”

As the world’s major economic blocks transition from post-crisis fire control, toward something that will eventually approximate normal, central bank policy is un-synchronizing. This is clearly visible across the Atlantic. The Bank of England has been discussing interest rate increases. The Federal Reserve is still unwinding QE in measured steps and appears to be about a year away from interest rate hikes. The European Central Bank is stepping harder on the monetary accelerator through negative interest rates and other measures to stimulate bank lending. We may also see the Fed and Bank of Japan moving in opposite directions, as the Fed pivots next year while the BOJ maintains aggressive QE.

Foreign exchange rates are responding to the monetary policy decoupling. The British pound is at its highest level against the euro since late 2008. The dollar, too, has strengthened against the euro. Dollar/Yen has been relatively stable this year after the yen devalued significantly through 2013, but could see additional downward pressure on the yen next year. As the Federal Reserve winds down its asset purchase program late this year, foreign central bank purchases of U.S. Treasurys may also dial down, amplifying the drop in demand from the Fed, and putting upward pressure on U.S. interest rates and shifting spreads on sovereign bonds globally.

The National Association of Realtors Pending Home Sales Index increased by 6.1 percent in May, hitting its strongest level since September 2013. This report suggests that gains to May new and existing home sales will hold up into June. The total value of construction put in place in May increased slightly, up by 0.1 percent, as residential construction eased.

Market Reaction: U.S. equity prices are climbing. The yield on 10-Year Treasury bonds is up to 2.56 percent. NYMEX crude oil is down to $105.07/barrel. Natural gas futures are down to $4.43/mmbtu.

Economic Alert 070114

For a PDF version of this Comerica Economic Alert click here: ISM-MF 07-01-14.

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Comerica Economic Weekly

It was a fairly quiet week for U.S. economic data with one loud exception. The Bureau of Economic Analysis announced a sizeable downward revision to their estimate of 2014Q1 real GDP growth. The first estimate of Q1 GDP growth showed a paltry gain of just 0.1 percent annualized, held down by a confluence of transitory factors. The weather was very bad. The run-up in inventories that boosted 2013H2 GDP was unwinding. The federal budget sequester was still a drag on government spending. However, overall consumer spending was solid, due to an assumption about the rollout of the Affordable Care Act. The BEA assumed that consumer spending on services surged in Q1 due to pent-up demand for healthcare services.

The BEA’s second estimate showed that Q1 real GDP declined at a 1.0 percent annualized rate. Inventories were a bigger drag than first thought.

The BEA’s third estimate of Q1 real GDP showed sizeable contraction at a –2.9 percent annualized rate. Of the 268 quarters of GDP data, beginning in 1947Q2, 2014Q1 now ranks as the 17th worst quarter. Ninety-four percent of quarters since 1947Q2 were better. The reason for the large downward GDP revision from the second estimate centers on the healthcare assumption. In the third estimate, consumer spending on healthcare is no longer a major boost to GDP, but rather it is a small drag. Also, net trade, which was assumed to be a moderate drag in Q1 GDP in the first and second estimates, is now assumed to be a large drag.

The difference in real GDP growth of +0.1 percent in the first estimate, to –2.9 percent in the third estimate is huge. Prior to the Q1 estimates, the average revision from the first to the third estimate of GDP was 0.6 percent. Q1 was an exceptional quarter. Not only because it was the 17th worst GDP quarter since the end of World War II because of the unfortunate confluence of transitory events, but also because it was one of the most difficult for the BEA to estimate.

We continue to expect a rebound in real GDP growth for the current second quarter of around +2.5 percent.

Income and spending data for May are consistent with this complex characterization of the U.S. economy. Nominal personal income increased by 0.4 percent in May. The PCE price index was up 0.2 percent in May, the third month in a row at a 0.2 percent gain. After adjusting for inflation and taxes, real disposable income was up by 0.2 percent in May. Real consumer spending dipped by 0.1 percent, bringing the personal saving rate up to 4.8 percent.

New orders for durable goods decreased by 1.0 percent in May, following three consecutive increases.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 06-27-14.

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May Income and Spending, Q1 GDP Revision, June UI Claims

Q1 GDP Revised Down Again, May Income/Spending Data Consistent with Q2 GDP Rebound

  • U.S. Personal Income increased by 0.4 percent in May, with solid wage growth.
  • After accounting for inflation and taxes, Real Disposable Personal Income also gained 0.2 percent.
  • Real Personal Consumption Expenditures decreased by -0.1 percent in May.
  • First quarter Real GDP growth was revised down to a -2.9 percent annual rate.
  • Initial Claims for Unemployment Insurance for the week ending June 21 dipped by 2,000 to hit 312,000.

Income and spending data for May are consistent with a positive, but complex, characterization of the U.S. economy. Yesterday, we saw the big negative revision to 2014Q1 real GDP, down to a -2.9 percent annualized growth rate. Today, we see solid income numbers for the mid-point of Q2, supported by moderate-to-strong job growth through the first two months of the quarter. Nominal personal income increased by 0.4 percent in May. The wage and salary component of income also increased by 0.4 percent. Dividend income has also been strong lately, growing by 1.2 percent in May, extending a four-month streak. The PCE price index was up 0.2 percent in May, the third month in a row at a 0.2 percent gain. On a year-ago basis, the PCE price index was up by just 0.8 percent in February. In May it was up by 1.8 percent. So we see clear evidence of inflation starting to warm up. After adjusting for inflation and taxes, real disposable income was up by 0.2 percent in May. Real consumer spending dipped by 0.1 percent, bringing the personal saving rate up to 4.8 percent. The May decline in real spending was preceded by a 0.2 percent dip in April. The main drag on spending has been in the services component. The estimates for services spending are being complicated by the rollout of the Affordable Care Act earlier this year. We know that auto sales are doing well, with May unit sales up to a 16.8 million unit annual rate. We also know that both new and existing home sales picked up in May. So we can say that the discretionary component of consumer spending is in good shape. For the quarter, real consumer spending is on track to increase moderately at about a 1.5 percent annual rate. That rate of consumer spending would be consistent with a rebound in Q2 real GDP growth to about a 2.5 percent annualized rate. Recent estimates of 4.0 percent GDP growth in Q2 look too strong, but it still looks like we will see a GDP rebound in Q2 and a resumption of moderate real GDP growth, in the range of 2.5 to 3.0 percent, through the second half of the year.

The big downward revision to Q1 real GDP, to a -2.9 percent annual growth rate, was largely due to a muddled estimation of the service component of consumer spending by the Bureau of Economic Analysis, again, complicated by the rollout of the Affordable Care Act. A confluence of transitory events pulled the quarter down. Weather, an inventory correction and the federal spending sequester lined up in a bad way.  Other economic metrics are consistent with ongoing moderate economic expansion. This includes initial claims for unemployment insurance which remain low and consistent with a declining unemployment rate. Initial claims dipped by 2,000 for the week ending June 21, to hit 312,000. Continuing claims for unemployment insurance edged up by 12,000 to hit 2,571,000 for the week ending June 14.

Market Reaction: U.S. equity markets opened with losses. The yield on the 10-year Treasury bond is down to 2.53 percent. NYMEX crude is down to $105.63/barrel. Natural gas futures are down to $4.53/mmbtu.

Economic Alert 062614

For a PDF version of this Comerica Economic Alert click here: Personal Income 062614.

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Comerica Bank’s Arizona Index Advances in April

Comerica Bank’s Arizona Economic Activity Index climbed in April, advancing 5.0 percentage points to a level of 107.1. April’s index reading is 36 points, or 50 percent, above the index cyclical low of 71.2. The index averaged 97 points for all of 2013, ten points above the average for full-year 2012. March’s index reading was revised down to 102.1.

“Our Arizona Economic Activity Index climbed rapidly in April. Revised data now show that the index is up for the sixth consecutive month. Our Arizona Index is being supported by ongoing improvement in residential real estate markets. Both house prices and building permits have strengthened recently. However, the plateau in payroll jobs for the state, visible since last December, is cause for concern. Arizona payroll employment levels remain well below their pre-recession peak,” said Robert Dye, Chief Economist at Comerica Bank. “I expect to see the state adding jobs soon, consistent with the gains seen in other economic data.”

AZ Index 0614

For a PDF version of the Arizona Economic Activity Index click here: ArizonaIndex_0614.

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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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