October U.S. Employment, September International Trade

No Surprises Keeps the Fed on Track for a December 14 Rate Hike

  • Payroll Employment increased by 161,000 jobs in October, dampened by Hurricane Matthew.
  • The Unemployment Rate for October eased back to 4.9 percent.
  • Average Hourly Earnings increased by 0.4 percent for the month, up 2.8 percent for the year.
  • Average Weekly Hours were steady at 34.4 in October.

U.S. nonfarm payrolls increased by a net 161,000 jobs in October, a little shy of the near-173,000 consensus. According to the Bureau of Labor Statistics, the data in parts of the East Coast was likely impacted by Hurricane Matthew. August and September job gains were revised up, so the average gain for August through October now stands at 176,000 net new jobs per month. After strong growth through the summer, the labor force declined in October by 195,000 workers. This helped pull the U.S. unemployment rate back down to 4.9 percent, after increasing to 5.0 percent in September. The average workweek was unchanged at 34.4 hours. Average hourly earnings in October were up 10 cents for the month, to $25.92, and were up 2.8 percent over the previous 12 months. Establishment data was a little quirky. Oil and gas extraction shed 2,300 jobs despite the recent gain in the rig count. Construction gained 11,000, a little light. Manufacturing employment dipped by 9,000 jobs, with losses in machinery. Wholesale trade employment was up by 6,300. Retail trade employment fell by 1,100 jobs, possibly weather related. Financial services added 14,000 jobs. Professional and businesses services was solid, gaining 43,000 jobs. Same with educational and healthcare, up 52,000 jobs. Leisure and hospitality industries expanded by 10,000 jobs. The government sector added 19,000 jobs.

There is nothing surprising in the October Employment Report that would cause the Federal Reserve to delay a fed funds rate hike beyond December 14. However, between now and December 14 the Fed will see a great deal of economic data, including the November Employment Report, which will be released on Friday, December 2. Barring a calamitous turn of events, it appears to be very likely that we will see a fed funds rate increase in December. The fed funds futures market shows the implied probability of a December rate hike at 76.3 percent.

The U.S. international trade gap narrowed in September to -$36.4 billion. There should be little net impact on the initial estimate of the Q3 GDP data, which contained an estimate for September trade. Nominal imports decreased by $3 billion while nominal exports increased by $1 billion in September.

Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is down to 1.78 percent. NYMEX crude oil is down to $44.46/barrel. Natural gas futures are flat at $2.95/mmbtu.

Economic Alert 110416

For a PDF version of this Comerica Economic Alert click here: Employment 11-04-16.

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October ISM Indexes, ADP Jobs, UI Claims, Central Banks

Fed Hints at December Rate Hike

  • The ISM Non-Manufacturing Index for October eased to a still-positive 54.8.
  • The ISM Manufacturing Index for October increased to 51.9, showing more momentum.
  • According to ADP, 147,000 private sector jobs were added in October.
  • Initial Claims for Unemployment Insurance increased by 7,000, to 265,000 for the week ending Oct. 29.
  • The Fed did as expected and kept the fed funds rate unchanged at the recent FOMC meeting.

The ISM Non-Manufacturing Index eased from a solid 57.1 in September, to a still-positive 54.8 for October. Thirteen out of 18 industries reported growth in October, including transportation and warehousing, construction, management, information and professional, scientific and technical services. Five industries reported contraction, including education, mining and agriculture. Anecdotal comments were generally positive; however, some industries reported stalling or cooling demand. The ISM Manufacturing Index increased from a modestly positive 51.5 in September to an even better 51.9 in October. New orders, production and employment were all positive factors. Ten out of 18 reporting industries said they grew in October, including textiles, food and beverage, nonmetallic mineral products, computers and electronics and petroleum and coal products. Eight industries reported contraction in October, including wood products, apparel and primary metals. Anecdotal comments were generally steady to positive. However, primary metals reported a “considerable slowdown” for October and November. The series has bounced back from the contractionary numbers of last October through February. Since this past spring, the series has been mostly positive, but without a clear trend. Taken together the two ISM reports for October are consistent with ongoing moderate economic growth through the fourth quarter.

The ADP Employment Report for October showed that 147,000 net private sector jobs were added in October, a little below expectations. If we add about 10,000 government jobs, that puts our estimate of tomorrow’s official job growth count for October at about 157,000 net new jobs. That is about where we were in August and September. However, with two weaker-than-expected months, the official data could bounce back in October. We will find out tomorrow at 7:30 a.m. CT. In other labor news, initial claims for unemployment edged up at the end of October, increasing by 7,000 to hit 265,000. There is a mild up trend visible in initial claims through October, but this is coming off of exceptionally low levels at the end of September. Continuing claims for unemployment insurance fell by 14,000, to hit 2,026,000 for the week ending October 22, a very low number.

The Federal Reserve issued a monetary policy announcement yesterday that lived up to expectations. First, they left the fed funds rate range unchanged at 0.25 to 0.50 percent. Second, they hinted that a December rate hike is on the table. There were two dissenting votes, from Esther George of Kansas City and Loretta Mester of Cleveland. The Bank of England yesterday hinted that they are changing course on monetary policy by dropping forward guidance of further easing. Similarly, The Bank of Japan did not ease further in their policy announcement of November 1. It looks like some other central banks are starting to line up behind the Fed in preparation for a gradual increase in global interest rates.

Market Reaction: U.S. equity markets are cautious ahead of the election. The yield on 10-Year Treasury bonds is up to 1.81 percent. NYMEX crude oil is down to $45.07/barrel. Natural gas futures are down to $2.98/mmbtu.

ISM.11.3.16

For a PDF version of this Comerica Economic Alert click here: ISM-MF 11-03-16.

 

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September Income and Spending, Chicago PMI

No Tricks in the Income and Spending Report, Just Treats

  • U.S. Personal Income increased by 0.3 percent in September.
  • After inflation and taxes, Real Disposable Income was unchanged for the second month in a row.
  • Nominal Consumer Spending increased by 0.5 percent in September.

Solid consumer spending is still the fundamental story of this economy. With unit auto sales climbing to a 17.8 million unit rate in September and gasoline prices up, nominal consumer spending increased by 0.5 percent for the month. After adjusting for inflation, real consumer spending gained 0.3 percent in September and was up 2.4 percent over the previous 12 months. We expect to see no further meaningful gains to auto sales over the next year, and that will take the wind out of consumer spending on durable goods. However, we expect to see ongoing gains in the largest spending category – services – in the months ahead, and that will help to stabilize the U.S. economy and contribute to moderate GDP growth over 2017. Nominal personal income increased by 0.3 percent in September, as wages and salaries also increased by 0.3 percent. Rental income gains were still strong in September, with the category up 0.6 percent, supported by tight real estate markets and increasing rents. After accounting for inflation and taxes, real disposable income was unchanged again in September after no change in August. Personal taxes increased by 0.5 percent for the month. The personal consumption expenditure (PCE) price index increased by 0.2 percent in September. Over the previous 12 months the PCE price index was up 1.2 percent, showing weak inflation. The core PCE price index (less food and energy) gained 0.1 percent in September and was up by 1.7 percent over the previous 12 months. We expect inflation indicators to continue to normalize to around 2 percent year-over-year through the first half of 2017. With nominal spending increasing more than nominal disposable income, the personal saving rate ticked down to 5.7 percent in September. With consumers reasonably confident and house prices increasing, we expect the personal saving rate to remain stable in the range of 5.5 to 6.0 percent in the coming months, meaning that consumers will continue to spend their income gains.

The Chicago Purchasing Managers Index for October dropped by 3.6 points to a still-positive 50.6, indicating that momentum in manufacturing activity in the Chicago area is easing. Both production and new orders weighed on the headline PMI.

Market Reaction: U.S. equity markets opened with gains. The yield on the 10-year Treasury bond is down to 1.83 percent. NYMEX crude is down to $47.41/barrel. Natural gas futures are down to $3.24/mmbtu.

Economic Alert 103116

For a PDF version of this Comerica Economic Alert click here: Personal Income 10-31-16.

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Comerica Economic Weekly

U.S. economic data through the end of October was reasonably positive.

We got our first estimate of third quarter real GDP growth this morning, and it came in about as expected, at a 2.9 percent annualized growth rate. A key underlying current in 2016 GDP data has been the large swing in inventories. Lower inventory accumulation in Q1 and inventory destocking in Q2 were anchors in GDP growth in the first half of 2016. In Q3 we see inventories being restocked, adding to GDP. Also, exports of goods surged in Q3, resulting in a gain from net trade. Consumer spending stepped down to a sustainable 2.1 percent growth rate in Q3. Business fixed investment was still weak, growing at just a 1.2 percent rate. Residential investment was also weak in Q3, declining at a 6.2 percent annual rate. Overall government spending was held in check by a decline in state and local spending. The first estimate of Q3 GDP is consistent with our expectations of ongoing moderate GDP growth through the current fourth quarter.

New orders for durable goods were essentially unchanged in September, easing by just 0.1 percent after gaining 0.3 percent in August. Core orders, nondefense capital goods excluding aircraft, dipped by 1.2 percent. This was a moderately weak report, suggesting that U.S. manufacturing is not feeling much momentum.

The Kansas City Fed reported that manufacturing activity picked up in October, but the Richmond Fed report sluggish manufacturing activity.

Initial claims for unemployment insurance decreased by 3,000 to hit 258,000 for the week ending October 22. Continuing claims fell by 15,000 to hit 2,039,000 for the week ending October 15.

The Case-Shiller U.S. National House Price Index for August increased by 0.5 percent for the month, and was up 5.3 percent over the previous 12 months.

New home sales increased by 3.1 percent in September, to a 593,000 unit annual rate. This continues an upward trend that began in mid-2011.

The National Association of Realtors’ Pending Home Sales Index for September increased by 1.5 percent, adding support to estimates of October existing home sales. Mortgage apps for purchase show no clear trend through September. Refi apps eased through the second half of the month.

The Conference Board’s Consumer Confidence Index ticked down in October to 98.6. Perhaps it was the electioneering. Sometimes, when the going gets tough, the tough go shopping.

The FOMC has a meeting next week, over Tuesday and Wednesday. We believe that the risk averse Yellen Fed will remain so and not increase the fed funds rate at next week’s monetary policy meeting. We continue to look for a fed funds rate hike at the December 13/14 FOMC meeting. According to the fed funds future market, the odds of a rate hike next week are just 9.3 percent. Odds for a December hike climb to 78.5 percent.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 10-28-2016.

 

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2016Q3 GDP, Sept. Durable Goods Orders, Oct. UI Claims

Q3 GDP Bounces Back on Inventory Build and Exports

  • Real Gross Domestic Product for 2016Q3 increased at a moderate 2.9 percent annual rate.
  • New Orders for Durable Goods were essentially unchanged, dipping by 0.1 percent in September.
  • Initial Claims for Unemployment Insurance decreased by 3,000, to 258,000 for the week ending Oct. 22.

The first estimate of third quarter 2016 real GDP showed growth bouncing back, about as expected, to a 2.9 percent annual growth rate. Inventories and trade were the key elements in the lift from weak 0.8 percent growth in the first quarter of 2016 and 1.4 percent growth in the second quarter. A normal rate of real (inflation adjusted) inventory accumulation is about $60 billion ($2009). In Q1 real inventory accumulation slipped to $40.7 billion. In Q2 inventories sold off, declining by $9.5 billion. In Q3 we see an inventory restocking of $12.6 billion. The swing from negative inventory accumulation in Q2 to positive in Q3 is a big lever on overall GDP. Inventories contributed 0.61 percentage points to the 2.9 percent overall real GDP growth rate in Q3. Net trade contributed about 0.83 percentage points to headline real GDP growth as exports of goods increased at a 14.5 percent annualized rate. Real consumer spending stepped down from an unsustainable 4.3 percent growth rate in Q2, to a moderate 2.1 percent rate in Q3. Overall business fixed investment remained weak in Q3 as business investment in equipment declined for the fourth consecutive quarter, and for six out of the last eight quarters, as oil field activity retrenched. Residential fixed investment dipped for the second consecutive quarter. We expect that to turn around in the current quarter and through 2017 as new home sales and housing starts gain momentum. Government spending increased at a meager 0.5 percent annualized rate in Q3 as state and local government spending eased. Overall, Q3 GDP came in about as expected with the components pointing to ongoing moderate growth in the current fourth quarter.

New orders for durable goods were essentially unchanged in September, easing by just 0.1 percent after gaining 0.3 percent in August. Most major categories saw small-to-moderate losses. Support came from new orders for motor vehicles and parts, up 1.2 percent, and new orders for commercial aircraft, up 12.5 percent. Core orders, nondefense capital goods excluding aircraft, dipped by 1.2 percent. This was a moderately weak report, suggesting that U.S. manufacturing is not feeling much momentum as car sales have likely crested, the dollar remains strong and energy industries have only just started to stabilize.

Initial claims for unemployment insurance decreased by 3,000 to hit 258,000 for the week ending October 22. Continuing claims fell by 15,000 to hit 2,039,000 for the week ending October 15. We expect payroll employment to increase by about 185,000 jobs in October.

Market Reaction: Equity markets opened with gains. The 10-year Treasury bond yield is up to 1.85 percent. NYMEX crude oil is down to $49.50/barrel. Natural gas futures are up to $3.24/mmbtu.

GDP.10.16

For a PDF version of this Comerica Economic Alert click here: GDP 10-28-16.

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Comerica Bank’s Texas Index Moves Sideways

Comerica Bank’s Texas Economic Activity Index was down just 0.1 percentage points in August to a level of 90.3. August’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 three-fifths points below the average for full-year 2014. July’s index reading was 90.4.

“The Comerica Bank Texas Economic Activity Index was essentially unchanged in August, easing by one-tenth of a point. We expect the index to level out in the months ahead and then resume an improving track, reflecting signs of stability in oil field activity and ongoing job creation statewide. The last 22 months have been ugly as the index fell 20 times. The drilling rig count for Texas began turning over after the November 2014 high of 904 active rigs. May 2016 was the low point at 179 rigs. Since last May the monthly count has increased to 244, as of September. Fortunately, during the tough times in the energy sector, Texas continued to add jobs on a net basis, with only two months of net job losses in the last two years, March 2015 and March 2016,” said Robert Dye, Chief Economist at Comerica Bank. “The resiliency of its diversified economy has served Texas well. We look for an improving state economy in 2017.”

TXStateIndex.10.16

For a PDF version of the Texas Economic Activity Index click here: TexasIndex_1016.

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Comerica Bank’s Michigan Index Sees Slight Decline

Comerica Bank’s Michigan Economic Activity Index declined 0.2 percentage points in August to a level of 129.3. August’s reading is 55 points, or 74 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. July’s index reading was 129.5.

“The Comerica Bank Michigan Economic Activity Index dipped again in August, after declining in July. In the 13 months ending in August, the Michigan Index has declined eight times and increased five times. Overall, the recent trend still looks positive, but not overwhelmingly so. Only three out of eight index components increased in August. They were nonfarm employment, state exports and auto production. Initial claims for unemployment insurance (inverted), housing starts, house price index, and hotel occupancy all deteriorated in August, while state sales tax revenues were unchanged,” said Robert Dye, Chief Economist at Comerica Bank. “We expect to see an ongoing economic expansion in Michigan through the first half of next year, but the rate of expansion will ease as the auto sector adjusts to stabilizing sales nationwide and small car production begins to migrate out of the state.”

MIStateIndex.10.16

For a PDF version of the Michigan Economic Activity Index click here: Michigan_1016.

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Comerica Bank’s California Index Strengthens

Comerica Bank’s California Economic Activity Index grew by 1.0 percentage points in August to a level of 122.7. August’s reading is 39 points, or 46 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. July’s index reading was 121.7.

“Our California Economic Activity Index increased again in August, its sixth consecutive monthly gain after stalling over the year from March 2015 through March 2016. During the stall, the NASDAQ 100 Technology Stock index dipped, defense spending eased and housing starts retrenched. These negative forces were roughly balanced by improving labor metrics, especially ongoing payroll job creation. Over the last six months, tech stocks have performed better, defense spending has stabilized and housing starts have gained some momentum. In August, six out of eight index components were positive including payroll employment, state exports, housing starts, defense spending, house price index and the tech stock index. Only initial claims for unemployment insurance (inverted) and hotel occupancy dipped for the month,” said Robert Dye, Chief Economist at Comerica Bank. “Even though we are seeing anecdotal reports of the northern California real estate market cooling, the Case-Shiller house price index for San Francisco increased by 1.0 percent in August.”

CAStateIndex.10.16

For a PDF version of the  California Economic Activity Index click here: CaliforniaIndex_1016.

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Comerica Bank’s Arizona Index Shows Improvement

Comerica Bank’s Arizona Economic Activity Index gained 0.2 percentage points in August to a level of 110.5. August’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. July’s index reading was 110.3.

“The Comerica Bank Arizona Economic Activity Index increased in August, its third consecutive monthly increase after stalling through last spring. Four index components improved in August, including nonfarm payrolls, housing starts, house prices and state sales tax revenue. State exports, initial claims for unemployment insurance (inverted) and enplanements eased for the month, while hotel occupancy was unchanged. The gainers for August remind us of previous incarnations of the state economy, when strong real estate markets drove above-average growth for the state. However, recent job growth has been inconsistent and the unemployment rate has fluctuated between 5.5 and 6.0 percent, well above previous cyclical lows,” said Robert Dye, Chief Economist at Comerica Bank. “We expect to see ongoing moderate growth for the Arizona economy through early next year.

AZStateIndex.10.16

For a PDF version of the Arizona Economic Activity Index click here: ArizonaIndex_1016.

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Comerica Bank’s Florida Index Looks Cooler

Comerica Bank’s Florida Economic Activity Index dipped by 0.9 percentage points in August to a level of 154.1. August’s index reading is 76 points, or 97 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. July’s index reading was 155.0.

“The Comerica Bank Florida Economic Activity Index eased in August after treading water in July. After increasing for 26 out of 27 months, from May 2014 through June 2016, the Florida index looks a bit cooler over last summer. In August, four index components increased, including nonfarm payrolls, house prices index, state sales tax revenues and hotel occupancy. Four components decreased, including state exports, initial claims for unemployment insurance (inverted), housing starts and enplanements. Recent damage from Hurricane Matthew was less than feared in Florida. On October 7, the storm caused a peak surge of 9.88 feet above normal at Fernandina Beach, Florida. Some retail establishments lost business, and others gained as Floridians prepared for the storm. We expect to see little measurable and lasting impact on the Florida economy from the storm,” said Robert Dye, Chief Economist at Comerica Bank. “We look for the Florida Index to resume its upward climb this fall, reflecting ongoing economic expansion for the state.”

FLStateIndex.10.16

For a PDF version of the Florida Economic Activity Index click here: FloridaIndex_1016.

 

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