November ISM-MF Index, UI Claims, October Construction Spending

  • The ISM Manufacturing Index for November increased to 53.2 percent, showing improving conditions.
  • Initial Claims for Unemployment Insurance increased by 17,000, to 268,000 for the week ending Nov. 26.
  • Construction spending increased by 0.5 percent in October.

The ISM Manufacturing Index for November increased from a mildly positive 51.9 in October to a more positive 53.2 percent. Out of 18 reporting industries, 11 reported growth in November, including petroleum and coal products, paper products and computers and electronic products. Six industries reported contraction in November, including printing, wood products and apparel. Anecdotal comments were positive, with many industries indicating their expectations for strong demand into 2017. Seven out of ten sub-indexes were positive for the month, including new orders, production and employment. The prices sub-index was positive and that will catch the Fed’s attention. This is a solid report for the U.S. manufacturing sector which was sagging at the end of last year. Good recent economic data, combined with the post-election bump in U.S. stock prices, will make the Fed’s decision to raise the fed funds rates at the upcoming Federal Open Market Committee on December 13-14, an easy one. The fed funds futures market currently places the odds of a 25-basis-point increase in the fed funds rate range on December 14 at almost 99 percent. At this point it would come as a shock to financial markets if the Fed did not raise the fed funds rate on December 14.

Labor market data from November also looks good. Initial claims for unemployment insurance increased by 17,000, more than expected, to hit a still-low 268,000 for the week ending November 26. The Thanksgiving holiday may have impacted seasonal adjustment factors. Continuing claims for the week ending November 19 increased by 38,000 to hit a still-low 2,081,000. Yesterday, the ADP Employment Report for November showed a stronger-than-expected increase of 216,000 private sector jobs for November. This would be consistent with about 226,000 total nonfarm jobs. Tomorrow morning we will get the official employment data for November from the Bureau of Labor Statistics.

Construction spending for October increased by 0.5 percent, boosted by a 2.8 percent increase in public projects. Private nonresidential construction spending dipped by 2.1 percent. Private residential construction spending increased by 1.6 percent, consistent with the strong gain in housing starts for the month.

Market Reaction: U.S. equity markets opened with gains, but then went south. The yield on 10-Year Treasury bonds is up to 2.45 percent. NYMEX crude oil is up to $51.58/barrel. Natural gas futures up to $3.48/mmbtu.

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For a PDF version of this Comerica Economic Alert click here:ism-mf-12-01-16.

 

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Comerica Bank’s Arizona Index Steadily Gaining

Comerica Bank’s Arizona Economic Activity Index increased 0.3 percentage points in September to a level of 110.8. September’s index reading is 34 points, or 44 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. August’s index reading was 110.5.

“The Comerica Bank Arizona Economic Activity Index increased again in September, its fourth consecutive monthly gain after stalling though the second quarter of this year. Six out of eight index components were positive in September, including nonfarm employment, unemployment insurance claims (inverted), house prices, sales tax revenue, hotel occupancy and enplanements. State exports and housing starts eased in September. Recent gains in the Arizona Index are consistent with stronger overall U.S. economic growth through the third quarter. We expect the positive momentum for the state to continue through the fourth quarter of this year and into early next year,” said Robert Dye, Chief Economist at Comerica Bank. “The Phoenix area housing market improved through 2016 and will continue to be a solid performer through 2017. In September, Phoenix house prices were up 5.3 percent over the previous 12 months according to the Case-Shiller data.”

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For a PDF version of the Arizona Economic Activity Index click here: arizonaindex_1116.

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Comerica Bank’s California Index Boosted by Tech Sector

Comerica Bank’s California Economic Activity Index increased by 1.6 percentage points in September to a level of 124.3. September’s reading is 40 points, or 48 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. August’s index reading was 122.7.

“Our California Economic Activity Index increased in September, indicating that the California economy accelerated at the end of the third quarter. The California Index has now increased for six consecutive months. Seven out of eight index components improved in September. They were nonfarm employment, state exports, claims for unemployment insurance (inverted), defense spending, house prices, hotel occupancy and the NASDAQ 100 Technology Stock index. Only housing starts dipped for the month. The uptick in California economic activity is consistent with solid third quarter U.S. GDP growth. We expect the state to continue to show good momentum through the end of this year and into early next year,” said Robert Dye, Chief Economist at Comerica Bank. “House prices were stronger than expected in September. According to the Case-Shiller data, Los Angeles house prices increased by a solid 0.5 percent in September, after seasonal adjustment. San Francisco prices were up by 0.3 percent. San Diego house prices also gained 0.3 percent for the month.”

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For a PDF version of the  California Economic Activity Index click here: californiaindex_1116.

 

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Comerica Bank’s Florida Index Improves

Comerica Bank’s Florida Economic Activity Index increased by 0.9 percentage points in September to a level of 155.1. September’s index reading is 77 points, or 99 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. August’s index reading was 154.2.

“The Comerica Bank Florida Economic Activity Index improved in September after easing in August. Through the summer months, the Florida Index essentially moved sideways, showing a brief stall in Florida’s economic expansion. We expect that pattern to break as the Index improves through year-end, consistent with ongoing momentum in the Florida economy. In September, seven out of eight index components were positive, including nonfarm employment, state exports, unemployment insurance claims (inverted), house prices, sales tax revenues, hotel occupancy and enplanements. The state will face some pressure from international tourism due to the stronger dollar, but domestic tourism will be supported by the strengthening U.S. economy,” said Robert Dye, Chief Economist at Comerica Bank. “Miami’s condo market is still correcting after overheating in 2015. A strong pipeline of new supply will keep prices subdued through 2017. However, a fundamentally strong Florida economy will eventually allow the Miami condo market to reset.”

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For a PDF version of the Florida Economic Activity Index click here: floridaindex_1116.

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Comerica Bank’s Michigan Index Eases Again

Comerica Bank’s Michigan Economic Activity Index fell in September, down 0.9 percentage points to a level of 128.1. September’s reading is 54 points, or 73 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. August’s index reading was 129.0.

“The Comerica Bank Michigan Economic Activity Index declined in September, for the third consecutive month. A reset in housing starts in late summer, after surging earlier in the year, was a persistent weight on the Michigan Index through the third quarter. In September only three out of eight index components were positive. They were nonfarm payrolls, state exports and hotel occupancy. Claims for unemployment insurance (inverted), housing starts, house prices, auto production and state sales tax revenues all declined for the month. We look for only modest momentum in the Michigan economy through early next year as auto production starts to ease in the state,” said Robert Dye, Chief Economist at Comerica Bank. “Most major auto makers expect slight declines in U.S. auto sales through 2017, and small car production is being shifted out of the state, so manufacturing employment is expected to be a drag on the state economy next year.”

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For a PDF version of the Michigan Economic Activity Index click here: michigan_1116.

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Comerica Bank’s Texas Index Sees Modest Improvement

Comerica Bank’s Texas Economic Activity Index improved slightly in September, up 0.3 percentage points to a level of 90.6. September’s reading is 18 points, or 24 percent, above the index cyclical low of 72.8. The index averaged 97.5 points for all of 2015, seven and one-half points below the average for full-year 2014. August’s index reading was 90.3.

“The Comerica Bank Texas Economic Activity Index improved in September, only the second monthly improvement in the 23 months since October 2014. Over the last two years, the decline in the state’s drilling rig count, reflecting much reduced oil field activity, has been a strong weight on the overall index. With firmer oil prices, the rig count leveled out over the summer and has begun to increase. We expect that stability in oil field activity will allow the Texas Index to stabilize and then to gradually improve through 2017. However, next year will likely not show a strong rebound for Texas. Oil field activity will remain well below the booming pace seen from 2010 through 2014. The Houston economy, in particular, will take some time to recover, and this will keep improvement in our Texas Index moderate through 2017,” said Robert Dye, Chief Economist at Comerica Bank. “We look for ongoing job gains in Texas through 2017 as the drag from the energy sector dissipates.”

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For a PDF version of the Texas Economic Activity Index click here: texasindex_1116.

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Comerica Economic Weekly

U.S. economic data released in mid-November has been generally positive and consistent with growing expectations of a fed funds rate increase on December 14. In her prepared remarks for the congressional Joint Economic Committee, FOMC chair Janet Yellen said today that “…an increase [in the fed funds target range] could well become appropriate relatively soon.” Yellen is still hedging her bets, but that is about as strong an indication from her as we are likely to hear that we will see a December rate hike. Expectations for a December rate hike are very high. According to the fed funds futures market, the implied odds of a December rate hike are 91 percent.

Retail sales were solid in October, gaining 0.8 percent, after increasing by a strong 1.0 percent in September. Auto sales drove the numbers higher. Unit auto sales for the month reclaimed the 18.0 million unit mark. Other retail sales categories were generally positive.

One of the softer reports for the week was on U.S. industrial production for October, which was unchanged after dipping slightly through August and September. Manufacturing output increased by 0.2 percent for the month. Mining output gained 2.1 percent, consistent with moderate gains in the drilling rig count. Utility output fell by 2.6 percent.

Housing starts surged in October, gaining 25.5 percent, with strong single-family construction and a rebound in multifamily building activity. Permits gained slightly, up 0.3 percent for the month.

Business inventories increased in September by 0.1 percent. Better still, the inventory/sales ratio is trending down after climbing through 2015.

The Producer Price Index for final demand was unchanged in October. On the goods side, increases in energy prices were muted by declining food prices. On the services side, declines in trade and other service prices reduced the services sub-index for the month. Over the previous 12 months the PPI for final demand was up by 0.8 percent. Excluding food, energy and trade, it was up by 1.6 percent over the year.

The Consumer Price Index increased by 0.4 percent in October, driven by increases in energy, apparel and shelter prices. Headline CPI is trending up on a year-over-year basis, now up by 1.6 percent. Core CPI (less food and energy) was up 0.1 percent for the month, and by 2.1 percent over the previous 12 months.

Initial claims for unemployment insurance fell by 19,000 for the week ending November 12, to hit a very low 235,000. Continuing claims for the week ending November 5 dropped by 66,000, with the total falling below the benchmark two million level to an ultralow 1,977,000. The Empire State Manufacturing Survey for November was stronger than expected, showing a pick-up in manufacturing activity for the New York region over the month.

The Federal Reserve bank of Philadelphia’s manufacturing index eased in November to a still-positive 7.6.

According to the Federal Reserve Bank of Atlanta, their hourly wage tracker was up 3.9 percent in October over the previous 12 months.

We will not publish a Comerica Economic Weekly next week. Happy Thanksgiving!

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 11-18-2016.

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October Industrial Production, Producer Prices

Production Stall Continues as Utility Output Falls, Producer Prices Flat

  • Industrial Production for October was unchanged as utility output fell.
  • The Producer Price Index for final demand was also unchanged in October.

Industrial production for October was unchanged after dipping slightly through August and September. Manufacturing output increased by 0.2 percent for the month. Mining output gained 2.1 percent, consistent with moderate gains in the drilling rig count. Utility output fell by 2.6 percent. The headline industrial production index levelled out in 2016 after sliding through 2015 with reduced oil field activity. The reset in energy markets has also spilled over into the manufacturing sector as reduced oil field activity means reduced demand for equipment and products. As of October, the headline index remains 2.3 percent below its November 2014 peak. With stabilizing oil prices and ongoing improvements to drilling efficiency, which are reducing marginal costs of production in key U.S. oil fields, we expect to see more support for the industrial production index from the energy sector going forward. However, modest gains from the energy sector may be offset by reduced production in the auto sector. U.S. auto sales appear to be peaking and U.S. nameplates are moving small car production to Mexico. So we do not expect to see resurgence in U.S. manufacturing activity in 2017. Piling on, the strong dollar also represents a headwind for U.S. manufacturing, likely through next year. A key focus of the incoming Trump administration is to support U.S. manufacturing through the renegotiation of trade deals and by labelling China as a currency manipulator. Trump has called for tariffs on Chinese goods and for U.S. trade officials to take action against China through the World Trade Organization. He has also criticized U.S. companies for moving production to Mexico, including U.S. automakers. So there is upside risk to our expectation of ongoing flattish industrial production if the Trump administration is able to take meaningful steps quickly.

The Producer Price Index for final demand was unchanged in October. On the goods side, increases in energy prices were muted by declining food prices. On the services side, declines in trade and other service prices reduced the services sub-index for the month. Over the previous 12 months the PPI for final demand was up by 0.8 percent. Excluding food, energy and trade, it was up by 1.6 percent over the year. We expect to see consistent year-over-year gains in the PPI going forward.

Market Reaction: Equity markets opened with losses. The yield on 10-Year Treasury bonds is down to 2.22 percent. NYMEX crude oil is down to $45.59/barrel. Natural gas futures are up to $2.92/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: Industrial Production 11-16-16.

 

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Florida Economy Gains Momentum Heading into 2017

The Florida economy continues to run hot in the second half of 2016, supported by an acceleration in employment growth in the third quarter. Employment growth for most major Florida metro areas continues to outpace the national average and gains are being seen across most major sectors. In particular, Florida manufacturing has been surprisingly strong. While the U.S. has seen stagnant to declining manufacturing employment growth over the past year, Florida manufacturing employment increased, up 4.4 percent in the 12 months ending in September. Earlier this year the state legislature passed House Bill 7099 in support of state manufacturers, which made existing sales and use tax exemptions of eligible industrial machinery and equipment permanent. The state tourism sector is weathering the drag from the strengthening U.S. dollar, which makes Florida vacations more expensive for international visitors. Year-over-year employment growth in leisure and hospitality remains above 4 percent. While the U.S dollar has appreciated by 24.4 percent against the U.K. pound in the 12-months ending in October, accelerated by the U.K.’s vote to leave the E.U., the U.S. broad trade weighted dollar has begun to stabilize, up just 3.2 percent. The housing sector began to cool off a bit with slower construction employment growth and a tick down in multifamily construction in the third quarter. However, we expect a rebound in residential housing due to strong home demand, supported by a robust labor market and population growth. The Florida economy will be firing on “most cylinders” heading into 2017.

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For a PDF version of the complete Florida Economic Outlook, click here: FL Outlook 112016.

 

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Arizona Addresses Poverty and Education

Arizona’s economic rebound in the second half of the year has been more muted than originally thought. Arizona job growth continues to move in the right direction, but recent data has us dialing back our expectations for next year. Construction employment continued its win streak with above-trend growth, up 9.2 percent in the 12 months ending in September. This is following strong new home construction throughout Arizona. The much larger services sector is growing at a more moderate pace. Arizona economic growth will outpace the U.S. average over the next few years. However, we expect Arizona, much like the rest of the nation, to experience slower growth in the quarters ahead than historical averages.

Hurdles for the Arizona economy in the long run are household income and education attainment, which impact the propensity to spend and the access to qualified workers. According to the Census Bureau, Arizona had the eighth highest poverty rate in the nation in 2015, with 17.4 percent of people in the state living below the poverty level. The state legislature is attempting to address these issues. In November, voters passed Proposition 206 which incrementally increases the state’s minimum wage from the current rate of $8.05 per hour to $12.00 per hour by 2020, increasing with the U.S. Consumer Price Index thereafter. The law also guarantees paid sick leave to workers of non-exempted businesses and is expected to impact around 700,000 workers. Earlier this year, Arizona also passed Proposition 123, increasing education funding by $3.5 billion over the next 10 years.

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For a PDF version of the complete Arizona Economic Outlook, click here: AZ Outlook 112016.

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