Comerica Economic Weekly

It was a light week for U.S. data but rumblings from Washington elevated the stock market. President Trump suggested that the framework of his proposed tax overhaul would be made public soon. Also, deregulation was in the news with discussion about proposed changes to the Dodd-Frank Act.

Labor data was solid. The Jobs Openings and Labor Turnover Survey for December showed a slight dip in the job openings rate to 3.6 percent. The hiring rate was unchanged at 3.6 percent and the separation rate eased to 3.4 percent.

Initial claims for unemployment insurance fell by 12,000 for the week ending February 4, to hit 234,000. The 4-week moving average for initial claims hit the lowest level since November 1973. Continuing claims increased by 15,000 to hit 2,078,000 for the week ending January 28, still a very low number. We show continuing claims scaled by the size of the labor force in our graph on page 2. That ratio is the lowest since the late ‘60s.

The Federal Reserve released the results of their January Senior Loan Officer Survey. Generally speaking, loan standards on commercial and industrial loans were unchanged in the fourth quarter of 2016. Standards tightened on commercial real estate loans but were unchanged for residential real estate.

Mortgage applications increased for the week ending February 3, boosted by both purchase and refi apps. The Mortgage Bankers Association said that the rate for 30-year fixed-rate mortgages eased to 4.35 percent.

The U.S. international trade gap narrowed in December to -$44.3 billion. Exports were up by $5 billion for the month while imports grew by $3.6 billion. This implies a 0.1 percent increase to the 1.9 percent annualized growth rate for the first estimate of 2016Q4 GDP growth.

There was a strong build in U.S. crude oil inventories for the week ending February 3 due to a surge in imports. Gasoline inventories fell on strong demand. Natural gas storage fell in line with expectations. Natural gas inventories are down 11.3 percent from a year ago.

According to the St. Louis Fed’s Financial Stress Index, we are unstressed with a reading of –1.21 for the week ending February 3.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: Comerica_Economic_Weekly_ 02102017.

 

Posted in General, United States, Weekly | Tagged , | Comments Off on Comerica Economic Weekly

Positive Start to 2017, But Jobs Data Didn’t Add Up

U.S. economic data at the start of the first quarter is positive and consistent with real GDP growth in the neighborhood of 2.0-2.5 percent. Job growth in January was better than expected as 227,000 net new payroll jobs were added to the U.S. economy. However, even with the strong payroll gains, the details underneath the headline in the January jobs report were mixed. The household survey of employment was significantly weaker than the payroll survey, showing a net loss of 30,000 jobs in January. The household survey often diverges from the payroll survey for a month or two but is fairly consistent over the long term. Given the fact that the household survey has been weaker than the payroll survey for the last four months, it looks like there is potential for a snapback in the household survey soon. The opposite view is that the household survey is picking up weakness that the payroll survey is not. If this was corroborated by other economic data, we would give the pessimistic view more weight; however, most other labor market metrics are good.

Total (continuing) claims for unemployment insurance through mid-January remain at exceptionally low levels, not seen since the 1970s. Moreover, if we scale UI claims to the size of the labor force, that ratio is the lowest it has been since 1969. Also, both the national-level ISM Manufacturing and Non-Manufacturing Indexes have employment components. In both of these surveys, the January employment sub-indexes were above 50 and increasing, meaning that more companies plan to keep hiring.

Also, the count of the labor force, which is part of the household survey, has been weak for the last four months. This has allowed the unemployment rate to tick up from 4.6 percent in November, to 4.7 percent in December, to 4.8 percent in January. We described both the December and January gains in the unemployment rate as inconsequential, but we recognize that a series of inconsequential gains eventually becomes consequential. We expect the household survey to reset over February and March, bringing the unemployment rate back down.

Another weaker-than-expected component of the January jobs report was the measly 0.1 percent gain in average hourly earnings. This is important because the Federal Reserve is watching wage and inflation indicators carefully, in order to calibrate their monetary tightening cycle. If productivity growth (output per hour per employee) is strong, then wage growth does not squeeze corporate profits, and so it is not inflationary. However, recent productivity growth has been sluggish, up just 1.0 percent year-over-year in 2016Q4. Other measures of wage growth are hotter than average hourly earnings, as reported by the Bureau of Labor Statistics. The Federal Reserve Bank of Atlanta’s wage growth tracker was up 3.5 percent year-over-year in December. This may be inflationary with today’s low productivity gains.

So what does the Fed do with this jumble of data? …Nothing. We expect the Federal Reserve to remain in watch-and-wait mode at the next FOMC meeting over March 14/15. We still look for the next increase in short-term interest rates to come on June 14. If the Fed wants to increase interest raise rates before June, they will need to prepare financial markets by firming up their forward guidance. They did not take the opportunity to clarify their guidance in the February 1 policy announcement.

For a PDF version of the complete Comerica U.S. Monthly with additional commentary, tables, and charts, click here: US_Economic_Outlook_0217.

Posted in General, Monthly, United States | Tagged , | Comments Off on Positive Start to 2017, But Jobs Data Didn’t Add Up

Comerica Economic Weekly

It was a busy week for U.S. economic data, the majority of which was positive and consistent with an ongoing moderate economic expansion through the first quarter of 2017.

The big non-news for the week was the Federal Reserve monetary policy announcement. The Fed on Wednesday afternoon said that they will leave the fed funds rate unchanged for the time being. There was little new news in their policy announcement, just a little more emphasis on inflation. The Fed will be highly attuned to inflation indicators this year as they discuss the timing and pace of future fed funds rate hikes. Financial markets remain focused on June 14 as the most likely date for the next fed funds rate hike. If the Fed wants to hike on March 15 or May 3, they will need to bring market expectations forward in order to avoid an unpleasant lurch.

Job growth was stronger than expected in January. Payroll jobs increased by 227,000 for the month. The household survey has been out of synch with the payroll survey and this has allowed the unemployment rate to tick up over the past two months to 4.8 percent. This is not a meaningful move. We expect the household survey to snap back soon, keeping the unemployment rate in the range of 4.6 to 4.8 percent, indicating tight labor market conditions.

Initial claims for unemployment insurance fell by 14,000, to hit 246,000 for the week ending January 28. Continuing claims fell by 39,000, to hit 2,064,000 for the week ending January 21. These are very low numbers, especially if you scale them to the size of the labor force.

Productivity growth remains weak. The first estimate of 2016Q4 productivity growth was 1.3 percent annualized. Low productivity growth implies that wage growth will tend to be more inflationary, so it factors into the Fed’s interest rate expectations.

The ISM Manufacturing Index for January increased from December’s 54.5 to 56.0, indicative of good and improving conditions for U.S. manufacturers. Seven out of ten sub-indexes improved in January, including new orders, production and employment. The prices index was the highest of the ten sub-indexes, reaching a very strong 69.0, consistent with warming inflation.

The ISM Non-Manufacturing Index for January was essentially unchanged from December, easing slightly to 56.5, indicating ongoing positive conditions for the largest part of the U.S. economy. Production, new orders and employment sub-indexes continue to be positive. The prices sub-index increased from 56.1 in December, to a strong 59.0 in January, indicating some inflationary pressure.

Construction spending eased in December, down 0.2 percent. Private residential spending was up by 0.5 percent for the month, reflecting the rebound in multifamily housing starts. Private nonresidential spending was unchanged. Public construction spending fell by 1.7 percent with declines widespread across categories.

House prices appreciated more than expected in November, indicative of tight real estate markets. According to the Case-Shiller U.S. National Home Price Index, prices gained 0.8 percent in November, after seasonal adjustment, and were up 5.6 percent over the previous 12 months. Even though prices were strong in November, we have already seen that sales of both new and existing homes were soft in December. It is too early to say that weak sales at year-end were a result of higher mortgage rates, but there is some downside risk to the housing market, especially if mortgage rates rise more quickly through the second half of this year.

Auto sales eased as expected in January, down from the robust 18.4 million unit pace of December, to a still-strong 17.6 million unit pace in January. Domestic car sales remain a weak link.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: Comerica_Economic_Weekly_ 02032017.

 

Posted in General, United States, Weekly | Tagged , | Comments Off on Comerica Economic Weekly

January U.S. Employment, ISM Non-Manufacturing

 Job Growth Better Than Expected but Wage Gains Tepid

  • Payroll Employment increased by 227,000 jobs in January, exceeding expectations.
  • The Unemployment Rate for January ticked up again, to 4.8 percent.
  • Average Hourly Earnings increased by just 0.1 percent for the month.
  • The ISM Non-Manufacturing Index for January was little changed at 56.5.

A better-than-expected 227,000 net new payroll jobs were added to the U.S. economy in January, consistent with other positive economic data. The household survey of employment was weaker, showing a net loss of 30,000 jobs in January. The household survey often diverges from the payroll survey for a month or two. Given the fact that the household survey has been weaker than the payroll survey for the last four months, it looks like there is potential for a snapback in the household survey soon. This would probably bring the unemployment rate back down to 4.6 to 4.7 percent. The other half of the unemployment rate calculation is the labor force. Labor force growth was also a little light in January at 76,000. So it looks like there is a little noise in the recent unemployment rate data resulting in an increase over the last two months, from 4.6 percent in November, to 4.8 percent in January. Other labor market indicators, including the ratio of initial claims for unemployment insurance to payroll jobs, give us a consistent indication of tight labor markets. The average workweek was unchanged at 34.4 hours. Average hourly earnings increased by only 3 cents, or 0.1 percent, in January. This is a much scrutinized number recently because of the inflationary potential of increasing wages. The tepid wage gains reported in January will keep the Fed in no hurry to raise the fed funds rate. The fed funds futures market still favors June 14 for the next fed funds rate hike. If the FOMC wants to move before that, on March 15 or May 11, then they will need to move expectations forward. Chicago Fed President Charles Evans, a voting member of the FOMC this year, gave a dovish speech at Prairie State College this morning.

The gains in the establishment data were spread across the private sector. Mining, including oil drilling, added 4,000 jobs in January. Construction ramped up by 36,000 jobs. Manufacturing added 5,000. Wholesale trade employment was up by 3,000 jobs. Retail trade rang up a hefty 45,900 jobs. Transportation and warehousing industries went in reverse, losing 4,000 jobs. Information services added 3,000. Finance put a strong 32,000 jobs on the ledger. Professional and business services hired 39,000 more workers. Education and healthcare gained 24,000. Leisure and hospitality served up 34,000 net new jobs. Government employment declined by 10,000 jobs. This was not a result from President Trump’s hiring freeze. The losses came from state and local.

The ISM Non-Manufacturing Index for January was essentially unchanged from December, easing to 56.5, indicating ongoing positive conditions for the largest part of the U.S. economy. Production, new orders and employment sub-indexes continue to be positive. The prices sub-index increased from 56.1 in December, to a strong 59.0 in January, indicating some inflationary pressure.

Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is down to 2.43 percent. NYMEX crude oil is up to $54.08/barrel. Natural gas futures are down to $3.06/mmbtu.

For a PDF version of this Comerica Economic Alert click here: Employment_02032017.

Posted in Daily, General, United States | Tagged , | Comments Off on January U.S. Employment, ISM Non-Manufacturing

January ADP Jobs, ISM-MF, Dec. Construction Spending, Nov. Home Prices

Strong Data Suggest Good Start to 2017 for U.S. Economy

  • The January ADP Employment Report showed a strong gain of 246,000 private-sector jobs for the month.
  • The ISM Manufacturing Index for January increased to 56.0, showing improving manufacturing conditions.
  • Construction Spending dipped by 0.2 percent in December as public projects eased.
  • The Case-Shiller U.S. National Home Price Index was up 5.6 percent in November over the previous year.

A strong crop of data this morning suggests that the U.S. economy is getting off to a good start in 2017. The ADP Employment Report, which measures private-sector job growth, showed a greater-than-expected 246,000 net private sector jobs added to the U.S. economy in January. If we add about 10,000 government jobs, that serves as a reasonable first estimate for the official Bureau of Labor Statistics Employment Report for January, which is due out this Friday morning. The ADP numbers and the BLS numbers do not have to line up, but they generally move in the same direction, so expectations for the BLS numbers on Friday have increased. According to ADP, resources and mining added 6,000 jobs in January. Construction gained 25,000. Manufacturing added 15,000, which is good for this stage of the business cycle. Trade/transportation/utilities employment increased by 63,000. Information services declined by 6,000. Financial services netted zero for the month. Professional/business services added a strong 71,000 jobs in January. Education and healthcare was up 47,000. Leisure and hospitality gained 17,000.

The ISM Manufacturing Index for January increased from December’s 54.5 to 56.0, indicative of good and improving conditions for U.S. manufacturers. Seven out of ten sub-indexes improved in January, including new orders, production and employment. Seven out of ten sub-indexes are at 50 or higher, indicating the breadth of the improvement. The prices index was the highest of the ten sub-indexes, reaching a very strong 69.0, consistent with warming inflation. Of 18 reporting industries, 12 reported growth in January, including plastics and rubber products, apparel, leather, paper and chemicals. Five industries reported contraction in January, including nonmetallic minerals, wood products, furniture and electrical equipment. Anecdotal comments were positive. Construction spending eased in December, down 0.2 percent. Private residential spending was up by 0.5 percent for the month, reflecting the rebound in multifamily housing starts. Private nonresidential spending was unchanged. Public construction spending fell by 1.7 percent with declines widespread across categories.

House prices appreciated more than expected in November, indicative of tight real estate markets. According to the Case-Shiller U.S. National Home Price Index, prices gained 0.8 percent in November, after seasonal adjustment, and were up 5.6 percent over the previous 12 months. Dallas prices were up 8.1 percent for the year. Detroit gained 6.6 percent. Los Angeles, 5.5 percent. Miami, 6.1 percent. Phoenix, 5.2 percent. San Diego, 5.8 percent. San Francisco, 5.3 percent. Even though prices were strong in November, we have already seen that sales of both new and existing homes were soft in December. It is too early to say that weak sales at year-end were a result of higher mortgage rates, but there is some downside risk to the housing market, especially if rates rise more quickly through the second half of this year. U.S. economic data will continue to roll out today. The Federal Reserve will release a monetary policy announcement at 1 p.m. central time. We expect to see no changes to interest rates. Also, vehicle sales for January will roll out today. We expect to see a step down from the robust 18.4 million unit sales rate of December.

Market Reaction: U.S. equity markets opened with gains. The yield in 10-Year T-bonds is up to 2.49 percent. NYMEX crude oil is up to $53.47/barrel. Natural gas futures are up to $3.17/mmbtu.

For a PDF version of this Comerica Economic Alert click here: ADP_02012017.

Posted in Daily, General, United States | Tagged , | Comments Off on January ADP Jobs, ISM-MF, Dec. Construction Spending, Nov. Home Prices

Comerica Bank’s Arizona Index Ticks Up

Comerica Bank’s Arizona Economic Activity Index increased in November, up 0.7 percentage points to a level of 111.7. November’s index reading is 35 points, or 45 percent, above the index cyclical low of 77.0. The index averaged 106.9 points for all of 2015, seven and one-fifth points above the average for 2014. October’s index reading was 111.0.

“The Comerica Bank Arizona Economic Activity Index increased in November for the sixth consecutive month. Nonfarm employment, home prices, hotel occupancy, unemployment insurance claims (inverted) and enplanements were positives. State exports dipped in November, as did housing starts and sales tax receipts. Despite the positive result in our index, job growth for Arizona was choppy in 2016, with net losses for three months last year. Even with the inconsistent payroll growth, Arizona’s unemployment rate dipped to 5.0 percent in November, just above the U.S. average. Tight labor markets and the increase in the state minimum wage to $10 per hour will put some upward pressure on wages in 2017,” said Robert Dye, Chief Economist at Comerica Bank. “Phoenix-area home prices were up by 5.2 percent in November over the previous 12 months, about even with the national average.”

For a PDF version of the Arizona Economic Activity Index click here: Arizona_Index_0117.

Posted in Arizona, General, Indices | Tagged , | Comments Off on Comerica Bank’s Arizona Index Ticks Up

Comerica Bank’s Florida Index Increases for the Third Consecutive Month

Comerica Bank’s Florida Economic Activity Index grew in November, up by 2.4 percentage points to a level of 159.3. November’s index reading is 81 points, or 104 percent, above the index cyclical low of 78.1. The index averaged 138.2 in 2015, twenty and seven-tenths points above the average for all of 2014. October’s index reading was 156.9.

“The Comerica Bank Florida Economic Activity Index climbed in November, continuing its upside breakout after stalling through the middle of 2016. Gains were broad-based, with six out of eight index components positive, including nonfarm employment, unemployment insurance claims (inverted), housing starts, home prices, hotel occupancy and enplanements. State exports eased in November, as did sales tax receipts. Job growth in Florida remains well above the national average, registering a 3.2 percent increase in the 12 months ending in November. That has brought Florida’s unemployment rate down in line with the national average. Tight labor markets and the statewide increase in Florida’s minimum wage, to $8.10 an hour, effective January 1, will put some upward pressure on wages this year,” said Robert Dye, Chief Economist at Comerica Bank. “Real estate prices are generally firm, especially in Tampa, where home prices were up 8.1 percent in November from a year earlier.”

For a PDF version of the Florida Economic Activity Index click here: Florida_Index_0117.

Posted in Florida, General, Indices | Tagged , | Comments Off on Comerica Bank’s Florida Index Increases for the Third Consecutive Month

Comerica Bank’s California Index Improves

Comerica Bank’s California Economic Activity Index grew by 0.9 percentage points in November to a level of 126.3. November’s reading is 42 points, or 50 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. October’s index reading was 125.5.

“Our California Economic Activity Index was up again in November, its 10th consecutive monthly increase. Gains were broad-based. Six out of eight index components were positive, including nonfarm employment, unemployment insurance claims (inverted), defense spending, home prices, hotel occupancy and technology stock prices. Housing starts eased for the month, as did state exports. Job growth in the state has been faster than the national average, with November employment up 2.3 percent over the previous 12 months. Steady job creation brought the state unemployment rate down to 5.3 percent in November, still above the U.S. average of 4.6 percent for the month. Even though the state’s unemployment rate remains above the U.S. average, labor market conditions are getting tight, putting upward pressure on wages. Wage pressure is also being stoked by the January 1st increase in the state’s minimum wage to $10.50 per hour,” said Robert Dye, Chief Economist at Comerica Bank. “Northern California real estate markets cooled in the second half of 2016, but San Francisco home prices were still up 5.3 percent in November, compared with a year earlier.”

For a PDF version of the  California Economic Activity Index click here: California_Index_0117.

Posted in California, General, Indices | Tagged , | Comments Off on Comerica Bank’s California Index Improves

Comerica Bank’s Michigan Index Continues Gains

Comerica Bank’s Michigan Economic Activity Index improved in November, up 1.3 percentage points to a level of 129.7. November’s reading is 56 points, or 75 percent, above the index cyclical low of 74.1. The index averaged 123.6 points for all of 2015, five and four-fifths points above the index average for 2014. October’s index reading was 128.4.

“The Comerica Bank Michigan Economic Activity Index increased for the second consecutive month in November. The state economy is showing broad-based gains, with six of the eight index components up for the month. Nonfarm employment, unemployment insurance claims (inverted), housing starts, home prices, sales tax revenues and hotel occupancy were all up in November. State exports eased, as did auto production. Year-over-year job growth for Michigan remains above the U.S. average, dipping slightly to 2.1 percent in November. The state’s unemployment rate declined to about even with the national average by late 2015 and remains close. Many industries report very tight labor market conditions and this will keep upward pressure on wages through 2017,” said Robert Dye, Chief Economist at Comerica Bank. “The Trump Administration is focused on keeping auto sector jobs in Michigan and this will help to extend the current positive business climate for the state.”

For a PDF version of the Michigan Economic Activity Index click here: Michigan_Index_0117.

Posted in General, Indices, Michigan | Tagged , | Comments Off on Comerica Bank’s Michigan Index Continues Gains

Comerica Bank’s Texas Index Sees Another Month of Gains

Comerica Bank’s Texas Economic Activity Index grew by 0.7 percentage points in November to a level of 91.6. November’s index reading is 19 points, or 26 percent, above the index cyclical low of 72.8. The index averaged 97.5 points for all of 2015, seven and three-fifths points below the average for full-year 2014. October’s index reading was 90.9.

“The Comerica Bank Texas Economic Activity Index increased for the third consecutive month in November, showing that the state’s economy is turning the corner after the dramatic slowdown in oil field activity that began in late 2014. Seven out of eight index components were positive in November, including nonfarm payrolls, unemployment insurance claims (inverted), housing starts, rig count, home prices and hotel occupancy. Only state sales tax revenue eased. Job growth in Texas slowed from well above the national average in 2014, to near the national average through 2016. The most recent data shows a net of essentially zero new jobs for Texas in December 2016, which is the third weakest month for job growth in recent history. March 2015 and March 2016 both saw net job losses. However, we expect the state to bounce back from the weak December jobs report and show ongoing positive job creation through 2017,” said Robert Dye, Chief Economist at Comerica Bank. “The drilling rig count improved through late 2016, indicative of more economic activity in oil-intensive areas.”

For a PDF version of the Texas Economic Activity Index click here: Texas_Index_0117.

Posted in General, Indices, Texas | Tagged , | Comments Off on Comerica Bank’s Texas Index Sees Another Month of Gains