Comerica Bank’s Florida Index Up for Seventh Consecutive Month

Comerica Bank’s Florida Economic Activity Index increased by 0.8 percentage points in March to a level of 165.8. March’s index reading is 88 points, or 112 percent, above the index cyclical low of 78.1. The index averaged 155.3 in 2016, seventeen and one-tenth points above the average for all of 2015. February’s index reading was 165.0.

“The Comerica Bank Florida Economic Activity Index climbed for the seventh consecutive month in March. Five index components were positive for the month, including nonfarm payrolls, unemployment insurance claims (inverted), housing starts, house prices and hotel occupancy. Negatives in March were state exports, sales tax revenues and enplanements. The value of the dollar has eased against many currencies this year, removing some of the exchange rate headwind for foreign tourists. Still, the dollar remains strong compared with 2013/14 levels making Florida a pricier destination for international travelers. We expect the U.S. economy to gain momentum this year after a slow start in the first quarter, and this will support domestic tourism to the Sunshine State,” said Robert Dye, Chief Economist at Comerica Bank. “Recently, house price gains in Tampa have cooled after a strong 2016. We expect strong demand to keep Tampa area house prices firm this year.”

For a PDF version of the Florida Economic Activity Index click here:  Florida_Index_0517.

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Comerica Bank’s California Index Extends Gains

Comerica Bank’s California Economic Activity Index increased by 0.8 percentage points in March to reach 128.7. March’s reading is 45 points, or 53 percent, above the index cyclical low of 84.1. The index averaged 122.4 points in 2016, two and three-fifths points above the average for all of 2015. February’s index reading was 127.9.

“Our California Economic Activity Index increased again in March, for the 12th consecutive month. Results were mixed in March, with four out of eight index components positive and the other four negative. Positives for March were payroll jobs, federal defense spending, house prices and the NASDAQ 100 Technology Stock Index. Negatives were state exports, unemployment insurance claims (inverted), housing starts and hotel occupancy. We expect the California economy to make moderate gains through the remainder of this year. The state is exposed to key elements of the Trump Administration agenda, including export policy and defense spending. Also, federal personal income tax reform may have some negative implications for California if the deduction for state and local taxes is eliminated or reduced,” said Robert Dye, Chief Economist at Comerica Bank. “House prices are generally improving statewide, but strong gains in San Francisco through last year have eased to a more sustainable pace.”

For a PDF version of the  California Economic Activity Index click here:  California_Index_0517.

 

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Comerica Bank’s Michigan Index Ticks Up

Comerica Bank’s Michigan Economic Activity Index improved 0.8 percentage points in March to a level of 130.4. March’s reading is 56 points, or 76 percent, above the index cyclical low of 74.1. The index averaged 127.8 points for all of 2016, four and one-fifth points above the index average for 2015. February’s index reading was 129.6.

“The Comerica Bank Michigan Economic Activity Index increased modestly in March after declining in February. We believe that the Michigan Index will continue to show a modest upward trajectory for the remainder of this year, but growth in the Michigan economy will likely be inconsistent. We have not seen three consecutive monthly gains in the Michigan Index since the summer of 2015. In March, 6 out of 8 index components were positive, including nonfarm payrolls, state exports, unemployment insurance claims (inverted), house prices, sales tax revenue and hotel occupancy. The housing starts and auto production sub-indexes both eased in March. We look for flat auto production this year as sales ease a bit after last year’s record pace,” said Robert Dye, Chief Economist at Comerica Bank. “House prices in Detroit gained 7.0 percent in March over the previous year according the Case-Shiller data.”

For a PDF version of the Michigan Economic Activity Index click here: Michigan_Index_0517.

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Comerica Bank’s Texas Index Boosted by Broad Improvement

Comerica Bank’s Texas Economic Activity Index climbed by 2.6 percentage points in March to a level of 97.5. March’s index reading is 25 points, or 34 percent, above the index cyclical low of 72.8. The index averaged 91.3 points for all of 2016, six and one-tenth points below the average for full-year 2015. February’s index reading was 94.9.

“The Comerica Bank Texas Economic Activity Index increased for the seventh consecutive month in March, showing a sustained recovery in the state economy. Moreover, for the first time since May 2014, all eight components of the index were positive for the month. Payroll job growth has been positive on net for the 10 months ending in April, and we expect that positive trend to continue through the remainder of this year. With oil prices relatively stable near $50 per barrel, the drilling rig count continues to trend upward. That trend will not continue indefinitely, but we expect to see more gains through the second half of this year. Increased drilling activity is also helping Texas manufacturers and other providers of goods and services to the energy sector,” said Robert Dye, Chief Economist at Comerica Bank. “House prices in Dallas were up by 8.6 percent in March over the previous year according to the Case-Shiller data, further evidence of a strengthening Texas economy.”

For a PDF version of the Texas Economic Activity Index click here:  Texas_Index_0517.

 

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April Personal Income, May Consumer Confidence, March Home Prices

 Stronger Consumer Spending Will Lift Q2 GDP           

  • U.S. Real Disposable Personal Income increased by 0.2 percent in April.
  • The Personal Consumption Expenditure Price Index increased by 0.2 percent in April.
  • After inflation, Real Consumer Spending increased by 0.2 percent in April.
  • The Consumer Confidence Index eased to a still-high 117.9 in May.
  • The Case-Shiller U.S. National Home Price Index was up by 5.8 percent in March, over the previous year.

The April income and consumer spending numbers are consistent with our expectation for stronger real GDP growth in 2017Q2, after a weak start to the year. Nominal personal income increased by 0.4 percent in April, about as expected. The biggest component of personal income, wages and salaries, increased by a strong 0.7 percent in April, after stalling in March. The April catch-up in wages and salaries is not surprising given moderately strong job growth for the month when 211,000 net new payroll jobs were added. After adjusting for inflation and taxes, real disposable income increased by a moderate 0.2 percent for the month. The personal consumption expenditure price index, the key inflation index associated with income and consumer spending data, increased by a moderate 0.2 percent in April, and was up by 1.7 percent over the previous 12 months. Inflation was boosted by consumer energy prices, which increased by 1.0 percent in April. Excluding food and energy, the core PCE price index was also up by 0.2 percent in April, and was up by 1.5 percent over the previous 12 months. Nominal consumer spending increased by 0.4 percent in April, supported by higher energy prices and by a modest increase in auto sales. After adjusting for inflation, real consumer spending increased by 0.2 percent for the month, and is consistent with a near-3 percent annualized rate of growth for Q2 real consumer spending. Consumer spending accounts for two-thirds of GDP, so solid monthly consumer spending numbers through the quarter bode well for GDP growth. With spending increasing about the same rate as income in April, the personal saving rate was unchanged for the third consecutive month at 5.3 percent. With house prices going up, homeowners are building equity in their homes at a good rate, so we expect the personal saving rate to remain fairly steady over the next few months.

Strong consumer confidence is not essential to maintain consumer spending, but it helps. In May, the Conference Board’s Consumer Confidence Index eased to a still high 117.9. This index jumped after the presidential election last November and peaked in March, before giving up just a little ground in April and May. Better economic data in the current quarter should help consumer confidence, and the tight labor market is a major support, but the deteriorating political climate in Washington may be weighing on confidence. Still, when the going gets tough, sometimes the tough go shopping.

Another support to consumer confidence, and also to consumer spending, is home prices growth. According to the Case-Shiller U.S. National Home Price Index, U.S. home prices were up by 0.3 percent in March over February, after seasonal adjustment, and were up 5.8 percent over the previous 12 months. Eighteen of the 20 cities in the Case-Shiller 20-City Index showed monthly house price gains in March. Only Cleveland and Tampa showed minor dips. Solid home prices over the last four years have been a major factor in rebuilding the strength of U.S. consumer spending.

Today’s data for the U.S. economy keeps the green light on for the next interest rate hike by the Federal Reserve. We expect the Fed to raise the fed funds rate range by 25 basis points, to 100-125 basis points, at the conclusion of the upcoming Federal Open Market Committee meeting over June 13/14. According to the fed funds futures market, the implied probability of that happening is 84.2 percent. We also look forward to learning more about the Fed’s plans for balance sheet reduction, expected to start by the end of this year.

Market Reaction: U.S. equity markets opened with losses after a strong week last week. The yield on the 10-year Treasury bond is down to 2.22 percent. NYMEX crude is down to $49.24/barrel. Natural gas futures are down to $3.15/mmbtu.

For a PDF version of this Comerica Economic Alert click here: Personal_Income_05302017.

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Comerica Economic Weekly

It was a light week for U.S. data. April home sales were soft. Q1 GDP was revised up and the Fed minutes revealed more about balance sheet reduction.

New home sales fell by 11.4 percent, to a 569,000 unit annual rate in April, the weakest sales rate since last December. The months’ supply of new homes for sale increased to 5.7 months’ worth, which is the highest inventory number since September 2015.

Existing home sales for April dipped by 2.3 percent, to a 5,570,000 unit annual rate. The inventory of existing homes for sale stayed tight at 4.2 months’ worth. The median sales price of an existing home this April was $244,800 or 6 percent higher than the previous April.

Mortgage applications for purchase have been soft through mid-May, down 0.8 percent for the week ending May 19.

First quarter real GDP growth was revised up from the first estimate of 0.7 percent to now 1.2 percent annualized growth. Consumer spending and business fixed investment were bumped up. The decline in state/local government spending was reduced. We still expect to see stronger growth in the current quarter.

New orders for durable goods decreased by 0.7 percent in April, after four consecutive monthly gains. Manufacturing conditions remain healthy by that measure. However, we will buy a little of that back by pointing out that shipments of manufactured durable goods have declined for three out of the last four months. Shipments drive the manufacturing component of GDP.

Initial claims for unemployment insurance increased inconsequentially by 1,000 for the week ending May 20, to hit 234,000. Continuing claims gained 24,000 for the week ending May 13, to hit 1,923,000, still a very low number.

Key takeaways from the minutes of the May 2/3 FOMC meeting: (1) The Fed views weak first quarter GDP growth as transitory. (2) The Staff economic forecast is supported by the assumption of expansive fiscal policy. (3) There is some concern that monetary policy normalization by the Fed could lead to financial strains in emerging markets. (4) FOMC members expect that conditions will continue to warrant gradual increases in the fed funds rate. This statement is consistent with a 25-basis-point increase in the fed funds rate range on June 14. (5) Balance sheet reduction will be executed in a gradual and predictable manner. (6) Caps on the dollar amount of securities that the Fed will roll off will be set low and then raised every three months. (7) Once ramped up, the caps will be maintained until the balance sheet has reached its targeted size. (8) The Fed’s Policy Normalization Principles and Plans will be updated soon. (9) The Fed will likely begin balance sheet reduction before the end of this year.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: Comerica_Economic_Weekly_ 05262017.

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April New and Existing Home Sales

 Sales Slip but Inventories of Existing Homes for Sale Remain Tight

  • New Home Sales decreased by 11.4 percent in April to a 569,000 unit annual rate.
  • Existing Home Sales fell by 2.3 percent in April to a 5,570,000 unit annual rate.

After a strong March, both new and existing home sales fell in April. The good news is that inventories of existing homes for sale remain very tight, and since that represents about 90 percent of all homes for sale, it is supportive of both the existing home and new home markets. Tight inventories represent both a short term positive for the overall housing market and a near-term constraint on sales. Demographic demand remains strong as household formation increases relative to population growth as economic conditions improve. And consumer conditions are positive. Solid labor market conditions will help to give reluctant millennials the confidence they need to jump into the housing market. Home builders’ confidence remains high, consistent with tight inventories. So we are building a case for ongoing gains in the single-family housing market, especially for new home sales, even though April was weak. Where might headwinds develop? One headwind will likely come from rising mortgage rates. We expect the Federal Reserve to increase the fed funds rate range by 25 basis points on June 14. If they do that, and perhaps follow up with another 25 basis point increase in September, that will put upward pressure on mortgages rates, reducing affordability. Also, balance sheet reduction by the Fed, expected to start late this year or early next year, may also put slight additional upward pressure on mortgage rates. Another headwind to home sales may come from declining consumer confidence if the political climate in Washington continues to deteriorate.

New home sales fell by 11.4 percent, to a 569,000 unit rate in April, the weakest sales rate since last December. The months’ supply of new homes for sale increased to 5.7 months’ worth, which is the highest inventory number since September 2015. Existing home sales for April dipped by 2.3 percent, to a 5,570,000 unit annual rate. The inventory of existing homes for sale remains tight at 4.2 months’ worth. The median sales price of an existing home this April was $244,800, 6 percent higher than the previous April.

Market Reaction: U.S. equity markets opened with gains. The 10-year Treasury bond yield is up to 2.29 percent. NYMEX crude oil is down to $51.36/barrel. Natural gas futures are down to $3.30/mmbtu.

For a PDF version of this Comerica Economic Alert click here:  New_Home_Sales_052417.

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Comerica Economic Weekly

U.S. economic data this week was generally positive and consistent with an increase in the pace of real GDP growth in the second quarter, following a weak first quarter.

Residential construction data was weaker than expected in April as total housing starts dipped by 2.6 percent to a 1,172,000 unit annual rate. Single-family starts were little changed for the month, easing slightly to an 835,000 unit rate. Multifamily starts (5+ units) dropped by 9.6 percent to a 328,000 unit rate. Multifamily construction has clearly lost momentum.

The National Association of Homebuilders’ Builder Confidence Survey for May showed increasing builder confidence, with expectations of future sales conditions very high.

Industrial production increased in April by 1.0 percent, looking strong in most industry groups and market groups. Manufacturing output increased by 1.0 percent in April as vehicle assemblies increased to an 11.9 million vehicle rate, the strongest assemblies rate so far this year. A sour note for manufacturing came from the Federal Reserve Bank of New York. Their Empire State manufacturing index dropped into negative territory in May, indicating a slight deterioration of regional manufacturing conditions. However, that was countered by the Philadelphia Fed’s manufacturing survey which remained solidly positive for the month.

Labor markets remain tight. Initial claims for unemployment insurance fell by 4,000, to hit 232,000 for the week ending May 13. Continuing claims fell by 22,000 for the week ending May 6, to reach an exceptionally low 1,898,000.

The Conference Board’s Leading Economic Index increased by 0.3 percent in April, as did both the coincident and the lagging indexes. Eight out of 10 components of the leading index were positive in April.

Mortgage applications for the week ending May 12 were soft as purchase apps fell 2.7 percent and refi apps fell 5.7 percent, according to the Mortgage Bankers Association. Their gauge of mortgage rates has been very steady, with a 30-year FRM at 4.23 percent.

U.S. oil inventories eased less than expected for the week ending May 12. Crude oil prices ended the week higher, with WTI crude hitting $50/barrel Friday morning.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here:  Comerica_Economic_Weekly_ 05192017.

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Arizona Economy On Positive Course Despite Q1 Slow Down

Revised Arizona payroll employment data were mixed. Starting with the positive, the Bureau of Labor Statistics annual revision indicated that Arizona added 69,700 jobs last year. This is twice the amount of jobs in 2016 than the original data implied. However, Arizona job growth unexpectedly slowed in the Q1 of 2017, growing at a 0.7 percent annualized rate. This is the slowest rate since Q3 of 2010 when job growth was negative. The primary culprit in Q1 was weaker-than-expected job growth for private service providers, which makes up about three-fourths of Arizona employment, held down by declines in the administrative and waste, information and retail trade sectors. The relative affordability of Arizona remains a strong incentive for businesses to setup shop inside the state. Therefore, we expect improving private services to support overall job growth for the rest of 2017.

Tourism indicators have also been mixed in Arizona as domestic demand fills in the gap left by international travelers. Total enplanements at Sky Harbor International Airport began trending down at the end of 2015, pulled down by year-over-year declines in international passengers. State hotel occupancy, seasonally adjusted, has remained range bound throughout the latter half of 2016 and the start of 2017. Visitors from Canada and Mexico have been impacted by the relative strengthening of the U.S. dollar against the Canadian dollar and the Mexican peso, which remain 22 and 41 percent, respectively, below their 2014 levels. Demand from domestic travelers will pick up as the overall U.S. economy improves this year, supporting the Arizona tourism industry.

For a PDF version of the complete Arizona Economic Outlook, click here:  AZ_Outlook_0517.

 

 

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Florida Economy Maintains Momentum in Early 2017

The Florida economy is on pace to expand in the first half of 2017 as state real gross domestic product growth improves, boosted by strong job and income growth. Construction employment alone, which is the third largest labor sector after private services and government, added 15,800 jobs in the first three months of 2017. The growth story is no longer just about tourism and retirees. Florida manufacturing employment has grown at an average of 3.3 percent over the past three years, well above the U.S. average of 0.9 percent. The state economy continues to diversify by attracting new businesses and effectively capitalizing on its large number of educational institutions that develop skilled workers. However, there are potential headwinds in the near term. The Florida legislature recently approved a budget which would cut funding for Enterprise Florida, the primary economic development organization for the state and Visit Florida, an organization focused on marketing tourism. While tourism is not the only show in town, the leisure and hospitality industry still makes up 14 percent of total state employment. Governor Scott still has to decide whether to veto or sign the budget into state law.

Florida tourism is also experiencing a shift from international traveler demand to domestic demand. The economic slowdown in Canada and Brazil, and the strengthening of the U.S. dollar versus global currencies, led to declining international travel to Florida last year. A stronger overall U.S. economy will continue to boost domestic tourism into Florida, helping to fill the gap and support state consumer spending in 2017.

For a PDF version of the complete Florida Economic Outlook, click here:  FL_Outlook_0517.

 

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