The pushes and pulls on the U.S. economy are coming from multiple directions, adding to a sense of uncertainty that threatens to paralyze policy makers.
Among the negatives are a stronger dollar and weakening oil patch, both headwinds for U.S. manufacturers. Markit’s Flash U.S. Manufacturing PMI (not the ISM MF Index) eased in April, indicating slower momentum for the manufacturing sector.
Oil service companies have announced a second round of layoffs that number in the tens of thousands. The graph on page two of this report shows that oil patch states are feeling the hit.
Outside of the oil patch, labor market indicators look good. Initial claims for unemployment insurance ticked up by 1,000 for the week ending April 18, to hit a still-low 295,000. Continuing claims increased by 50,000, to hit 2,325,000 for the week ending April 11. The ongoing strength of the unemployment insurance claims data reinforces our view that the soft March payroll job gain of just 126,000 does not represent a sudden loss of momentum in the U.S. job market. We expect to see stronger payroll jobs data for April and May.
New home sales for March came in weaker than expected, resetting after a February surge. The March reset dropped new home sales by 11.4 percent to a 481,000 unit annual rate. Despite the dip this March, new home sales remain 19.4 percent above the rate from March 2014. The months’ supply of new homes on the market remains relatively tight at 5.3 months’ worth.
Existing home sales for March increased by 6.1 percent to a 5,190,000 unit pace. While the uptick is welcomed news, existing home sales remain below their recent peak of 5,380,000 units from July 2013. The months’ supply of existing homes for sales was a tight 4.6 months’ worth in March. The median sales price of an existing home was up 7.8 percent for the year ending in March.
Mortgage applications for purchase gained 5.0 percent for the week ending April 17. Five out of the last seven weeks have seen increases in purchase apps, a positive indicator for the spring residential real estate season.
New orders for durable goods increased by a strong 4.0 percent in March, but the gains were not broad-based. Primary metals, fabricated metals, machinery, communications equipment and electrical equipment all saw declining orders in March. Gains came from both defense and nondefense aircraft. Core durable goods orders, non-defense capital goods excluding aircraft, slipped by 0.5 percent.
U.S. stock indexes climbed through the week and oil prices maintained their recent highs, with WTI finishing the week near $57 per barrel. Military activity in the Middle East is keeping the oil market on edge. But the oversupply is still an issue. U.S. weekly crude oil production may be levelling out. Data from early March through mid-April show no clear trend. A sustained drop in U.S. production would take some pressure off of storage capacity.
So what is the Fed to do? At next week’s FOMC meeting, the Fed leaves near-zero interest rate policy in place, and likely maintains that stance through June. Unfortunately, the Fed’s own uncertainty about interest rate policy threatens to add to financial market volatility. We still look for interest rate lift-off in September.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 04-24-15.