Lower Oil Prices Increase Downside Risk for North Texas

The North Texas economy is growing strongly. The Dallas–Fort Worth metro area is adding jobs at a rapid rate. October 2014 payrolls were up 3.7 percent over the previous year, well above the 2.0 percent year-over-year growth rate for the U.S. as a whole. Labor markets are tight. The DFW metro area unemployment rate dropped to 4.8 percent in October, a full percentage point below the U.S. average.

Lower oil prices will be a drag on growth for North Texas in 2015 and beyond. The current $57 per barrel spot price for WTI is nearly half the $102 price from late June. The NYMEX futures price for light crude oil three years out, December 2017, is down to $66.39 per barrel. We expect to see significant cooling in the oil and gas sector of the North Texas economy over the next two years as a result of lower oil prices.

That said, we emphasize that the North Texas economy is well diversified. A list of major companies in the area show several that will actually benefit from lower oil prices, including American Airlines, Southwest Airlines, General Motors and Toyota. Some major employers are in the consumer goods sector which will benefit from lower gasoline prices nationally. These include J.C. Penny and RadioShack. Other defense-related employers such as Lockheed Martin and the military division of Bell Helicopter will not be adversely impacted by lower oil prices. We expect North Texas to remain a location of choice for U.S. corporate headquarters.

We have taken a conservative stance and lowered our payroll employment forecast for North Texas to align with the national average growth rate by the end of 2016. Given the current oil price regime, we do not expect the North Texas economy to fall into recession because of weakness in the oil and gas sector. However, downside risk for the North Texas economy has increased significantly because of the major slide on oil prices. We will continue to monitor Texas regional economic data carefully in the months ahead.

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Click here for the complete North Texas MSA Regional Economic Update: NorthTexas 2014Q3.

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Austin Surges Through Late-2014

Austin, one of the fastest-growing tech metros in the U.S., increased employment at a robust rate through the first three quarters of 2014. In 2014Q3, Austin added more than 9,930 jobs, most of them in the service-producing sector. Yet the unemployment rate ticked up to 4.3 percent, slightly higher than the previous quarter. The current unemployment rate is still lower than the Texas average, at 5.1 percent. While the high-tech sector has grown in importance, the regional economy is still exposed to lower oil prices. Oil and natural gas production is concentrated on the eastern and southern edge of the metro area. We expect job growth to moderate in Austin in 2015, reflecting a cooler Texas economy as oil prices moderate. In addition to high-tech industries, the presence of the State Capitol and the main branch of the University of Texas will help to buffer the drag to the Austin economy from lower oil prices.

Austin’s housing market is very strong with house prices are growing around 12 percent year-over-year. According to Trulia, current house prices in Austin are 19 percent above prices suggested by economic fundamentals (such as price/income ratio, price/rent ratio, and current prices vs long-term trends). Strong income growth along with high-wage job growth and strong net migration is fueling housing demand and boosting home prices. With the solid demand, both single- and multifamily housing starts are increasing in Austin.

Austin is a pro-tech and pro-business metro area with a growing reputation for incubating businesses, highly ranked educational programs, and a family-friendly environment. Austin ranked number five among the U.S. metro areas in terms of high net worth software companies founded after 2003, number seven in terms of best cities for young entrepreneurs, and number three in terms of private company tech acquisitions since 2012. We expect Austin to remain a top U.S. area for high-tech industries.

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Click here for the complete Austin MSA Regional Economic Update: Austin 2014Q3.

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November Residential Construction, Industrial Production, December Rig Count

 Home Construction Dips, MF Output Surpasses Pre-Recession Peak

  • November Housing Starts dipped by 1.6 percent to a 1,028,000 unit annual rate.
  • Permits for new residential construction fell in November by 5.2 percent to a 1,035,000 unit pace.
  • The Industrial Production Index increased by 1.3 percent in November.
  • The Baker Hughes Rig Count for the U.S. fell in early December to 1,893 rigs.

Home construction remains range-bound near the 1 million units per year mark. Even though homebuilder sentiment is improving, we are not seeing enough new home sales to boost the construction numbers out of the range where they have been for the last year. Housing starts in November dipped by 1.6 percent to a 1,028,000 unit pace. After rising in October, single-family starts in November gave back much of the gain. Multifamily starts increased moderately. Permits told the same story. Single-family permits in November eased after increasing in October.

Industrial production, by contrast, had a banner month in November. The headline industrial production index increased by a strong 1.3 percent for the month. Part of the surge came from a weather-related gain in utility output, up 5.1 percent for the month. However, manufacturing output was also strong, increasing by 1.1 percent to put that metric above its December 2007 pre-recession peak for the first time. Motor vehicle assemblies surged by 7.9 percent in November, supported by the strong 17.2 million unit sales rate for the month. Car sales, in turn, were helped by falling gasoline prices.

On the other side of the petroleum price slide, in early December the Baker Hughes rotary rig count for the U.S. had the biggest one-week slide since March 2013. The rig count for the second week of December fell by 27 rigs to 1,893. This is still a strong number, but it is clearly off the September peak.

The Federal Open Market Committee began its two-day meeting today. In tomorrow’s policy announcement we expect to see a revision to the Fed’s forward guidance on interest rates. We look for a change in the “considerable time” phrase, toward something more general. This will signal another step in the Fed’s pivot toward monetary policy normalization. We still look for interest rate liftoff around mid-year 2015.

Market Reaction: Equity markets opened with losses. The yield on 10-Year Treasury bonds is down to 2.06 percent. NYMEX crude oil is down to $54.88/barrel. Natural gas futures are down to $3.65/mmbtu.

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For a PDF version of this Comerica Economic Alert click here:Housing Starts 121614.

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Comerica Economic Weekly

The economic discussion this week was focused on the price of oil. At this writing the NYMEX price for WTI is listed at $57.96 per barrel, well below the 52-week high of $102.53 from last June 25th. The national average price for regular unleaded gasoline today is $2.60 per gallon, well below the year-ago average of $3.25 per gallon.

Falling oil prices lowered the producer price index for final demand, which declined by 0.2 percent in November. PPI has now declined for 3 out of the last 4 months. On a year-ago basis the PPI for final demand is still up 1.4 percent. The energy sub-index was down by 3.1 in November, its fifth consecutive monthly drop. The energy index has increased in only one month in the last 10.

Lower gasoline prices are stoking consumer confidence. The University of Michigan’s preliminary Consumer Sentiment Index for December surged to 93.8, well above consensus expectations.

More confident consumers are buying more stuff. Retail sales for November came in stronger than expected, gaining 0.7 percent and are up 5.1 percent from a year ago. Strong auto sales were a boost. Unit auto sales increased from a 16.4 million unit annual rate in October to 17.2 million in November. Retail sales of autos and parts were up by 1.7 percent for the month. Falling gasoline prices and robust job growth supported spending across a broad range of retail categories.

Business optimism is improving as well. The National Federation of Independent Business’s Small Business Optimism Index continued its upward climb, jumping to 98.1 for November.

Business inventories gained a subdued 0.2 percent in October. We expect inventories to be a slight drag on Q4 real GDP. Lower crude oil and petroleum product prices are exerting downward pressure in nominal inventories. After price adjustment, real inventories will be stronger than the October numbers show.

Labor market metrics continue to look good. Initial claims for unemployment insurance dipped by 3,000 to hit 294,000 for the week ending December 6. Anything below 300,000 is a very good number. Continuing claims for unemployment insurance jumped by 142,000, to hit 2,514,000 for the week ending November 29. We expect the jump in continuing claims to be reversed in the weeks ahead. The jobs opening rate from the October JOLTS report increased from 3.2 percent to 3.3 percent. With more job openings absorbing slack in the labor force and fewer job losses, the unemployment rate will continue to trend downward through early 2015.

The U.S. House of Representatives voted last night to approve a $1.1 trillion federal budget bill, averting a government shutdown. The Senate is expected to approve the bill within the next few days. The bill funds most of the federal government through September 2015.

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

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November Retail Sales, October Inventories, December UI Claims

Autos Set the Pace for Strong Retail Sales

  • November Retail Sales increased by 0.7 percent, boosted by surging auto sales.
  • Ex-auto Retail Sales gained 0.5 percent. Most categories were up. Service station sales dropped.
  • Business Inventories for October were up by 0.2 percent, following a 0.3 percent gain in September.
  • Initial Claims for Unemployment Insurance dipped by 3,000 to hit 294,000 for the week ending Dec. 6.

Retail sales for November came in stronger than expected, gaining 0.7 percent and are up 5.1 percent from a year ago. Strong auto sales were a boost. Unit auto sales increased from a 16.4 million unit annual rate in October to 17.2 million in November. Retail sales of autos and parts were up by 1.7 percent for the month. Falling gasoline prices and robust job growth supported spending across a broad range of retail categories. Building materials sales gained 1.4 percent. Clothing stores increased sales by 1.2 percent. Most other categories saw gains. Service station sales were an exception. Sales were down by 0.8 percent reflecting lower gasoline prices. Strong consumer spending at year end represents an upside risk to our subdued Q4 real GDP growth forecast of 1.5 percent. The auto sales rate for December will need to be above 16.6 million units in order to show a quarter-over-quarter gain in the fourth quarter.

Business inventories gained a subdued 0.2 percent in October. We expect inventories to be a slight drag on Q4 real GDP. Lower crude oil and petroleum product prices are exerting downward pressure in nominal inventories. After price adjustment, real inventories will be stronger than the October numbers show.

Labor market metrics continue to look good. Initial claims for unemployment insurance dipped by 3,000 to hit 294,000 for the week ending December 6. Anything below 300,000 is a very good number. Continuing claims for unemployment insurance jumped by 142,000, to hit 2,514,000 for the week ending November 29. We expect the jump in continuing claims to be reversed in the weeks ahead. The jobs opening rate from the October JOLTS report increased from 3.2 percent to 3.3 percent. With more job openings absorbing slack in the labor force and fewer job losses, the unemployment rate will continue to trend downward through early 2015.

Market Reaction: Equity markets are back up following opening losses driven by the price slide for crude oil. The 10-year Treasury yield is up to 2.21 percent. NYMEX crude oil is down to $60.97/barrel. Natural gas futures are down to $3.70 per mmbtu.

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For a PDF version of this Comerica Economic Alert click here: Retail Sales 12-11-14.

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December 2014, Comerica U.S. Economic Update

Reset in Q4 GDP but Still Good Momentum at Year End

We look for a reset in Q4 real GDP growth after two strong quarters. Following a weak start to the year, in part due to extreme winter weather conditions last winter, 2014Q2 real GDP bounced back with a robust 4.6 percent annualized growth rate. Third quarter real GDP was also strong at 3.9 percent. It looks like some of the strength in Q3 GDP growth was borrowed from the current fourth quarter. For that reason, we are forecasting a reset to real GDP growth, down to a 1.5 percent annual rate for 2014Q4. Even with November’s strong vehicles sales, at a 17.2 million unit annual rate, we look for less push to consumer expenditures in Q4 than we had in Q3. Also, after two strong quarters of inventory accumulation, we expect to see less of it in Q4. Finally, Q3 real GDP growth was boosted by a surge in federal government defense expenditures. Growth in real defense spending surged at a 21 percent annual rate in Q3, contributing 0.67 percent to Q3 real GDP growth. We look for a correction in defense spending in the current quarter that will show up in the GDP accounting as a significant drag on growth. After the reset to Q4 GDP growth, we expect to see ongoing moderate to strong real GDP growth through the first half of 2015.

Despite the expected GDP reset, we observe strong momentum in the U.S. economy at year end. Labor markets continue to improve. A robust 321,000 payroll jobs were added in November. Hours worked increased, and so did wages. The combination of more workers, working longer hours, for higher wages provides a powerful boost to the U.S. economy. The unemployment rate for November held steady at 5.8 percent, but is set to resume its decline through early 2015. Auto sales have roared back. The 17.2 million unit sales rate of November cannot be sustained indefinitely, but it provides strong evidence that U.S. consumers are in a better mood this holiday shopping season.

And why shouldn’t U.S. consumers be in a better mood? Employment opportunities and job security are improving along with wages. The stock market shook off its October hiccup to hit new highs in November and early December. Gasoline prices are still falling. With the price for WTI crude oil down to near $66 per barrel in early December, the average U.S. price per gallon for regular unleaded gasoline fell to $2.68 by December 7. Some Texas service stations are already selling gasoline at less than $2.00 per gallon.

Not only will consumers shift the pattern of their spending toward non-energy purchases, we also expect to see a shift in the pattern of regional economic growth through 2015. The energy producing economies along the eastern edge of the Rocky Mountains, from Texas through the Dakotas will see less push from oil field development. The energy consuming economies of the East and West Coasts and the Midwest will see stronger job growth and better housing markets as a result of cheaper oil and gasoline prices.

 For a PDF version of the complete Comerica U.S. Monthly with additional commentary, tables, and charts, click hereUSEconomicUpdate1214.

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Comerica Economic Weekly

Solid U.S. data for October and November is making for a happy start to the holiday season.

Payroll employment data for November show strong momentum for the U.S. economy in Q4. November payrolls were up by 321,000, well above the consensus expectation of about 230,000. Job growth was broad-based across industries. In addition to very strong job gains, hours worked were up and hourly earnings were up as well. The average workweek for all private-sector employees increased to 34.6 hours. Average hourly earnings increased by 0.4 percent in November, the strongest one-month gain since June 2013. More employees, more hours and more pay makes the November employment report a very positive forward indicator for November income and spending, and for Q4 GDP growth. The unemployment rate was stable at 5.8 percent.

Other labor-related metrics look good. Initial claims for unemployment insurance dropped by 17,000 for the week ending November 29, to retreat back below 300,000, hitting 297,000. Continuing claims bumped up by 39,000 for the week ending November 22 to reach 2,362,000, still a very good number.

Third quarter nonfarm business productivity growth was revised up to a respectable 2.3 percent and unit labor costs were revised down, declining at a 1.0 percent annual rate.

The ISM Manufacturing Index for November eased slightly to a still-strong 58.7. Lower oil prices may have pulled the price component lower for the month. Otherwise, everything is blinking green. The ISM Non-Manufacturing Index for November increased to a very strong 59.3. Anything approaching 60 for both ISM indexes is a very good number.

Auto sales for November were better than expected, hitting a 17.2 million unit rate. Strong job growth, climbing consumer confidence and lower gasoline prices are all positives.

The U.S. international trade gap narrowed slightly in October to $43.4 billion. Both nominal imports and nominal exports edged up for the month. Real petroleum exports eased in October.

Construction spending for October was up by 1.1 percent. Public nonresidential spending increased by 2.4 percent and private residential construction spending was up by 1.3 percent with gains in single-family units.

These reports show ongoing momentum in the U.S. economy at year end. The Federal Reserve’s Federal Open Market Committee will meet over December 16 and 17 to discuss and set monetary policy. They will be looking at a banquet of positive U.S. data as they contemplate the next steps in their pivot toward monetary policy normalization. We expect to see a change in the Fed’s forward guidance on interest rates, consistent with interest rate lift-off around mid-year 2015.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 12-05-14.

 

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November U.S. Employment

Blowout Month for Payrolls, Up 321,000, Unemployment Rate Steady at 5.8 Percent

  • The November Payroll Employment Survey showed a robust gain of 321,000 payroll jobs.
  • The Unemployment Rate for November held steady at 5.8 percent.
  • Average Weekly Hours for all employees increased to 34.6 hours in November.
  • Average Hourly Earnings were up by 0.4 percent in November, the strongest monthly gain since June 2013.

Payroll employment data for November show strong momentum for the U.S. economy in the fourth quarter, after solid GDP growth in Q2 and Q3. November payrolls were up by 321,000, well above the consensus expectation of about 230,000. Job growth was broad-based across industries. In addition to very strong job gains, hours worked were up and hourly earnings were up as well. The average workweek for all private-sector employees increased to 34.6 hours. Average hourly earnings increased by 0.4 percent in November, the strongest one-month gain since June 2013. More employees, more hours and more pay makes the November employment report a very positive forward indicator for November income and spending, and for Q4 GDP growth. The widely-tracked payroll employment survey and the household employment survey, which feeds into the unemployment rate calculation, have been out of synch over the last couple of months. This is not unusual, but it did result in a stable unemployment rate for November, at 5.8 percent, despite the very strong payroll jobs gains. The household survey of employment increased by just 4,000 in November, after an outsized gain of 683,000 jobs in October. This report, taken in combination with other recent positive U.S. indicators, shows ongoing momentum in the U.S. economy at year end. The Federal Reserve’s Federal Open Market Committee will meet over December 16 and 17 to discuss and set monetary policy. They will be looking at a banquet of positive U.S. data as they contemplate the next steps in their pivot toward monetary policy normalization. We expect to see a change in the Fed’s forward guidance on interest rates, consistent with interest rate lift-off around mid-year 2015.

Payroll job growth was broad-based in November with one notable exception. Tellingly, resources and mining employment was unchanged in November, including the oil and gas extraction subcomponent. We will be monitoring the oil and gas sector closely in the months ahead, watching for signs of the drag from lower oil prices. Construction payrolls increased by 20,000 in November with gains in both residential and nonresidential trades. Manufacturing added a strong 28,000 jobs for the month, with gains in most industries, and a particularly strong month for job growth in plastics and rubber-related industries. This is consistent with strong auto sales for November. Employment in wholesale trade was up 2,500, while retail trade gained a strong 50,200. Transportation and warehousing increased employment by 16,700. Finance employment was up by 20,000 jobs, with gains coming from insurance and real-estate-related industries. Professional and business services added a strong 86,000 jobs, with nearly 23,000 temporary jobs added. Employment in education and healthcare was up by 38,000 jobs. Leisure and hospitality industries added 32,000 jobs in November. Lower gasoline prices are helping there. The government sector increased employment by 7,000 jobs in November.

Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is up to 2.29 percent. NYMEX crude is down to $66.42/barrel. Natural gas futures are up to $3.71/mmbtu.

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For a PDF version of this Comerica Economic Alert click here:Employment 12-05-14

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Comerica Bank’s Arizona Index Continues to Climb in September

Comerica Bank’s Arizona Economic Activity Index grew in September, increasing 0.6 percentage points to a level of 100.4. September’s index reading is 24 points, or 31 percent, above the index cyclical low of 76.7. The index averaged 95.4 points for all of 2013, seven and four-tenths points above the average for full-year 2012. August’s index reading was 99.8.

“Our Arizona Economic Activity Index climbed in September, for the fourth consecutive month. Most component series of our Arizona Index were positive for the month; only residential construction activity and passenger air travel declined. Payroll job growth for the state remains on par with the national average. Lower gasoline prices and improving consumer confidence at year end are positives for winter tourism for Arizona,” said Robert Dye, Chief Economist at Comerica Bank. “The only-modest bounce back in residential construction to date has kept the usually exuberant Arizona economy somewhat subdued compared with previous expansion cycles. However, we expect residential construction activity to gain momentum through 2015 as personal income and consumer confidence improve while mortgage underwriting standards ease.”

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For a PDF version of the Arizona Economic Activity Index click here: ArizonaIndex_1114.

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Comerica Bank’s Florida Index Advances in September

Comerica Bank’s Florida Economic Activity Index improved in September, growing 1.3 percentage points to a level of 120.8. September’s index reading is 43 points, or 55 percent, above the index cyclical low of 78.0. The index averaged 109.2 in 2013, ten and one half points above the average for all of 2012. August’s index reading was 119.5.

“Our Florida Economic Activity Index showed ongoing gains for the Florida economy in September. Six out of eight components of our Florida Index improved for the month; only state exports and state sales tax revenues declined. The rate of payroll job growth remains well above the national average and that is a very strong indicator for the state,” said Robert Dye, Chief Economist at Comerica Bank. “Lower gasoline prices at year end will help tourists travel to the Sunshine State this winter, and also allow them to spend more when they get there. Housing markets remain firm and we expect to see ongoing gains to construction activity in Florida in 2015.”

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For a PDF version of the Florida Economic Activity Index click here: FloridaIndex_1114.

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