March Retail Sales, Producer Prices, NFIB, February Inventories

Cars Drive Sales, Wholesale Prices Lift as Oil Stabilizes

  • March Retail Sales climbed by 0.9 percent as auto sales gained 2.7 percent.
  • Ex-auto Retail Sales increased by 0.4 percent.
  • The Producer Price Index for final demand increased by 0.2 percent in March.
  • Business Inventories for February increased by a moderate 0.3 percent.

After a three-month decline, retail sales increased by 0.9 percent in February, driven by retail sales of autos which increased by 2.7 percent. Previously reported unit auto sales for March climbed back up to a 17.2 million unit annual rate. Sales outside of autos were generally positive but unspectacular given very strong job growth through February. Building materials sales gained 2.1 percent for the month. Clothing stores increased sales by 1.2 percent in March. We expect firmer home sales this spring to add to overall retail sales, however, this is starting to feel like a different retail sales climate. Year-over-year changes in retail sales are almost always stronger than year-over-year changes in payroll employment. That is not the case now, with a 1.3 percent y/y gain in retail sales and a 2.3 percent y/y gain in payroll employment. Low inflation narrows the gap between job growth and retail sales, but something else is afoot. Retiring baby boomers, and risk averse millennials may have a lower propensity to consume. The Affordable Care Act may also be shifting spending habits for lower income households. Finally, the personal saving rate is trending higher. This shapes our long-term view that U.S. consumers keep pace with the overall economy, but do not lead the economy as they have done in previous decades.

Price indexes are normalizing as oil stabilizes near $50 per barrel. The Producer Price Index for final demand increased by 0.2 percent in March. The energy price sub-index for final demand goods gained 1.5 percent for the month, the first increased since last June. On a year-over-year basis, the PPI for final demand is still negative, down 0.8 percent. But as long as oil does not take another turn south, year-over-year comparisons will turn the corner and head north soon. The National Federation of Independent Businesses said that their Business Optimism Index fell 2.8 points in in March to 95.2 “in sympathy” with a string of weak economic reports. The overall trend is this survey remains positive. We expect to see a sympathetic turn higher in the second quarter. Total business inventories were up a modest 0.3 percent in February after no change in January. It looks like inventory accumulation will be a drag on first quarter real GDP growth. Also, the inventory/sales ratio has been climbing since the middle of last year which is not a good sign.

Market Reaction: Equity markets opened with losses. The 10-year Treasury yield is down to 1.86 percent. NYMEX crude oil is up to $53.06/barrel. Natural gas futures are up to $2.54/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: Retail Sales 04-14-15.

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Comerica Economic Weekly

It was a light week for U.S. economic data, but three data releases all reinforced our view that the weaker-than-expected March jobs report, with just 126,000 net new jobs added, was a normal abnormality, and does not represent the start of a cooler labor market.

The ISM Non-Manufacturing Index eased slightly from 56.9 in February, to a still-positive 56.5 in March. The production and new orders sub-indexes were well into positive territory. Significantly, so was the employment sub-index, which increased from 56.4 in February to 56.6 in March. No hiring slowdown here.

The Jobs Openings and Labor Turnover Survey (JOLTS) for February showed an uptick in the jobs openings rate to 3.5 percent. The 5.1 million job openings in February was the highest level since January 2001. The hiring rate was unchanged in February, and that may be due, in part or whole, to bad weather.

Finally, initial claims for unemployment insurance for the week ending April 4, increased by 14,000 to a still-very-low 281,000. The 4-week average for initial claims, at 282,250, was the lowest since June 3, 2000. Continuing claims for the week ending March 28 dropped by 23,000 to hit 2,304,000, a 14 year low.

The Federal Reserve’s assessment of the U.S. labor market is a critical factor in the timing of interest rate lift-off. The minutes of the Federal Open Market Committee meeting of March 17/18 were released Wednesday afternoon. This meeting concluded 12 days before the release of the weak March jobs report.

In the minutes we see a Fed very busy discussing and planning interest rate lift-off. The minutes state that the Federal Reserve will continue to target a range for the fed funds rate that is 25 basis points wide. That is to say, no half steps. Also, at lift-off, the Fed will set the interest rate on excess reserves (IOER) equal to the top of the target range for the fed funds rate, and set the offering rate on overnight reverse repurchase agreements (ON RRP) to the bottom of the target range for the fed funds rate.

Several FOMC members judged that the economic data and outlook were likely to warrant  beginning the normalization process (interest rate lift-off) at the June meeting. However, that view was not unanimous. With the release of the March employment report, expectations for June lift-off have diminished. We now look for lift-off by September 17. The trajectory of increases in the fed funds rate will be shallow.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 04-10-15.

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April 2015, Comerica U.S. Economic Update

If Punxsutawney Phil was an economist instead of a groundhog, he would have said on February 2, “six more weeks of soft data.” It was a bad winter for much of the country, and like the cold weather, soft economic data lingered into March. After unsustainably strong real GDP growth last year, averaging 4.8 percent in 2014Q2 and Q3, real GDP growth stepped down to 2.2 percent in 2014Q4. We expect to see a similar number for 2015Q1. Auto sales dropped from December through February, and new home sales were stagnant through 2014. The spate of soft data was capped last Friday with the release of the March payroll employment report that showed a much-weaker-than-expected 126,000 net new jobs were added to the U.S. economy for the month. But rather than a sign of a fundamentally weaker U.S. economy, we view the March jobs data as a typical correction following a string of very impressive monthly job gains. Over the 12 months ending in February this year, average monthly job growth for the U.S. was a robust 269,000 jobs per month, well beyond consensus expectations of a year ago. It is normal to see a weak month of job growth after a string of very strong months. We had the same pattern in the 1990s and in the 2000s. Moreover, other labor market indicators show that this is still a very strong job market. Initial claims for unemployment insurance for the week ending March 28 fell to 268,000, lower than anything that we saw in the 2000s. Also, in the ISM Non-Manufacturing Index for March the employment sub-index increased from 56.4 percent in February, to 56.6 percent, indicating ongoing strong hiring. We expect to see a stronger April jobs report, consistent with improving household finances. Despite the soft jobs data for March, auto sales rebounded to a 17.2 million unit rate for the month and new home sales surged to a 539,000 unit annual rate in February.

Oil prices remain a source of uncertainty for the U.S. economy. There is some risk that limited storage capacity for crude oil will result in another leg down in oil prices by the end of April (see page 2 for a detailed discussion). Also, the strong dollar is emerging as a headwind for U.S. exports. However, since mid-March the dollar has weakened against the euro as the economic outlook for the Euro zone improved.

We expect the Federal Reserve to look past the winter chill and focus on the potential for very tight labor markets in the months ahead. This will keep the FOMC on track to begin increasing the fed funds rate this year. We expect to see the first increase in the fed funds rate on either June 17 or September 17. According to the “dot plot” released by the FOMC on March 18, 14 out of 17 FOMC members expect to see the fed funds rate at 0.50 percent or greater by the end of this year. Our interest rate forecast is consistent with that view.

 For a PDF version of the complete Comerica U.S. Monthly with additional commentary, tables, and charts, click here: USEconomicUpdate_04_2015.

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Comerica Economic Weekly

This week’s U.S. data releases were mixed. Good news came from auto sales and unemployment insurance claims. Bad news came from a weaker-than-expected March jobs report.

In March, just 126,000 net new payroll jobs were added to the U.S. economy, well below inflated expectations of 248,000. The weak March data serves as a reality check on the labor market. It may not be supercharged after all, and it doesn’t need to be. Including downward revisions to January and February, we now see an average of 197,000 net new jobs per month over the last three months. This is a step down from the robust 324,000 average for the last three months of 2014. The 324,000 average from late last year was not sustainable. Near-200,000 new jobs per month is sustainable through this year, and will be enough to bring the unemployment rate down by about a tenth of a percent every other month, to finish the year near 5.0 percent.

The soft payroll jobs data for March is just one set of labor market indicators. Yesterday’s release of initial unemployment claims for the week ending March 28, at 268,000, was lower than anything seen in the decade of the 2000’s. Continuing claims for the week ending March 21 fell by 88,000 to a very low 2,325,000.

Auto sales accelerated back to a 17.2 million unit annual rate in March, where we were in November. The slide in sales through December, January and February ran counter to strong job growth and falling gasoline prices. So it looks like some pent-up demand over the winter got spent out in March. The 17.5 million unit mark from last August is still the local high point. We expect that auto sales will stay strong this year but are cresting at their cyclical high. Improving residential construction activity this spring may support pickup truck sales, although cooler oil drilling activity is a downer.

The weaker-than-expected March jobs data adds to uncertainty about the timing of fed funds interest rate lift-off. Some analysts have already concluded that the weaker-than-expected March jobs data eliminates the possibility of June lift-off. However, that view fails to account for normal monthly fluctuations in jobs data and ignores the fact that expectations were simply too high. The March jobs report is the last one that the Fed will see before the April 28/29 FOMC meeting. However, they will see three more weekly UI claims reports. We expect those reports to be strong, and so we do not eliminate the possibility of June lift-off.

However, the probability of September lift-off has increased. For now we will split the baby and say that there is a 50/50 chance for June or September. Janet Yellen has repeatedly said that the timing of lift-off is data dependent. The next three weeks of data are critical.

 For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 04-3-15.

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March U.S. Employment

Meek March Brings Jobs Data Back to Earth

  • The March Payroll Employment Survey showed a weaker-than-expected gain of 126,000 payroll jobs.
  • The Unemployment Rate for March was steady at 5.5 percent.
  • Average Weekly Hours for all employees dipped to 34.5 hours.
  • Average Hourly Earnings were up by 7 cents, with a 12-month gain of 2.1 percent.

In March, just 126,000 net new payroll jobs were added to the U.S. economy, well below inflated expectations of 248,000. The weak March data serves as a reality check on the labor market. It may not be supercharged after all, and it doesn’t need to be. Including downward revisions to January and February, we now see an average of 197,000 net new jobs per month over the last three months. This is a step down from the robust 324,000 average for the last three months of 2014. The 324,000 average from late last year was not sustainable. Near-200,000 new jobs per month is sustainable through this year, and will be enough to bring the unemployment rate down by about a tenth of a percent every other month, to finish the year near 5.0 percent. In our view, there is nothing anomalous about the weak March data. It looks like a normal correction, typical of the periodic corrections that we saw in the strong job markets of the 1990’s and 2000’s. Also, the soft payroll jobs data for March is just one set of labor market indicators. Yesterday’s release of initial unemployment claims for the end of March, at 268,000, was lower than anything seen in the 2000’s. In March the unemployment rate held steady at 5.5 percent. The average workweek dipped slightly to 34.5 hours. Average hourly earnings increased by 7 cents, for a 12-month gain of 2.1 percent.

The March malaise is visible across many industry groups, but it was not universal. Mining and logging gave up 11,000 jobs for the month, almost all in support industries which includes oil well servicing, consistent with reduced oil field activity. Construction gave up 1,000 jobs, perhaps weather related. Manufacturing lost 1,000 jobs in March, the first loss there since June 2013. There is spillover from lower oil prices in energy-related manufacturing, and increasing exchange rate headwinds for exporters. Wholesale trade employment was up 5,800. Retail trade employment was up a healthy 25,900 jobs. Transportation and warehousing employment increased by 9,500. Information services gained 2,000 workers while financial services gained 8,000.  Professional and business services employment was up a solid 40,000 jobs in March. Education and health services employment increased by a reasonable 38,000. Leisure and hospitality industries gained 13,000 jobs. Government employment dropped by 3,000 jobs in March.

This is the last monthly jobs report that the Fed will see before the April 28/29 FOMC meeting. They will see two more rounds of monthly jobs data before the June 16/17 meeting. If the April and May jobs data is also weak, that would likely delay fed funds lift-off to September or later. A resumption of +200,000 job gains in April and May increases the likelihood of a June 17 date for fed funds lift-off.

Market Reaction: U.S. equity markets are closed today. The 10-Year T-bond yield is down to 1.83 percent. NYMEX is closed today. NYMEX crude oil ended yesterday at $49.55/barrel. Natural gas futures ended yesterday at $2.70/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: Employment 04-03-15.

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February International Trade, March Auto Sales and UI Claims

Trade Gap Narrows, Autos Sales Jump, Claims Fall, Life is Good

  • The U.S. International Trade Gap narrowed to -$35.4 billion in February.
  • Light Vehicle Sales accelerated to a 17.2 million unit annual rate in March.
  • Initial Claims for Unemployment Insurance fell by 20,000 to hit 268,000 for the week ending March 28.

The string of softer-than-expected U.S. economic data was broken yesterday and this morning with better-than-expected trade, auto sales and UI claims. However, the trade numbers look quirky and may be less positive than the headline numbers imply. The U.S. international trade gap narrowed noticeably from -$42.7 billion in January to -$35.4 billion in February. Exports of goods dipped by $2.9 billion in February while exports of services were little changed. The beneficial push to the overall numbers came from the imports of goods, which declined by $10.3 billion for the month, while the imports of services were little changed. The biggest swing in goods imports came from industrial supplies and materials. Crude oil and other petroleum products are a part of that grouping. Crude oil imports fell by $2.3 billion in February and other petroleum product imports dipped by another $0.4 billion. Nonautomotive capital goods imports also fell by $2.6 billion. After adjusting for price effects, the real balance of trade in goods fell by $3.8 billion ($2009) in February. So far, the January and February average for the real balance of trade in goods is still slightly worse than the 2014Q4 average, implying that trade will still be a small negative for 2015Q1 GDP. So even though the nominal headline number for February looks good, the first quarter 2015 numbers may not be favorable, especially if we see some reversion to the export and import data in March.

Auto sales accelerated back to a 17.2 million unit annual rate in March; a number last seen in November. The slide in sales through December, January and February ran counter to strong job growth and falling gasoline prices. So it looks like some pent-up demand over the winter got spent out in March. The 17.5 million unit mark from last August is still the local high point. We expect that auto sales will stay strong this year but are cresting at their cyclical high. Improving residential construction activity this spring may support pickup truck sales, although cooler oil drilling activity is a downer. Initial claims for unemployment insurance fell by 20,000, reaching a very low 268,000 for the week ending March 28. Even with reduced expectations for tomorrow’s official payroll report for March, U.S. labor market indicators are all going in the right direction. Regionally, we note that Texas led states with a 2,035 increase in UI claims for the week, likely related to reduced oil field activity.

Market Reaction: U.S. equity prices are up. The 10-year Treasury Bond yield is up to 1.90 percent. NYMEX crude oil is down to $49.47/barrel. Natural gas futures are up to $2.67/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: Int Trade 04-02-15.

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Comerica Bank’s Michigan Index Shows Third Consecutive Increase

Comerica Bank’s Michigan Economic Activity Index increased in January, growing 0.3 percentage points to a level of 120.6. January’s reading is 47 points, or 63 percent, above the index cyclical low of 73.8. The index averaged 117.6 points for all of 2014, three and three-tenths points above the index average for 2013. December’s index reading was 120.3.

“Our Michigan Economic Activity Index increased for the third consecutive month in January, indicating ongoing gains to the Michigan economy. Inputs to the headline index were mixed, with 5 out of 8 components increasing for the month, including payroll employment. We expect that the push to the Michigan economy from improving manufacturing conditions will ease in the months ahead as auto production crests at a cyclical high, and manufactured exports face increasing price competition due to a stronger dollar,” said Robert Dye, Chief Economist at Comerica Bank. “We look for non-manufacturing industries to take a larger share of new jobs this year.”

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For a PDF version of the Michigan Economic Activity Index click here: Michigan_0315.

 

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Comerica Bank’s Florida Index Gaining Consistently

Comerica Bank’s Florida Economic Activity Index improved in January, growing 1.2 percentage points to a level of 125.9. January’s index reading is 48 points, or 61 percent, above the index cyclical low of 78.0. The index averaged 118.0 in 2014, eight and eight-tenths points above the average for all of 2013. December’s index reading was 124.7.

“Our Florida Economic Activity Index increased in January for the 10th consecutive month. Most components of the index were positive in January; only exports and housing starts dipped. Housing starts have been range bound, not improving since early 2013, but we expect to see more activity this year, supported by solid job growth. Job creation in Florida was solid through the second half of 2014 and into this January when it registered a strong 3.4 percent year-over-year rate, well above the U.S. average rate of 2.3 percent,” said Robert Dye, Chief Economist at Comerica Bank. “Restrained building activity has contributed to tighter housing availability, supporting prices. Miami posted a strong 8.3 percent increase in its house price index for the year ending in January, while Tampa was up 5.7 percent.”

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For a PDF version of the Florida Economic Activity Index click here: FloridaIndex_0315.

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Comerica Bank’s Arizona Index Shows Strong Gains

Comerica Bank’s Arizona Economic Activity Index grew in January, increasing 1.9 percentage points to a level of 105.9. January’s index reading is 29 points, or 38 percent, above the index cyclical low of 76.7. The index averaged 99.9 points for all of 2014, four and two-fifths points above the average for full-year 2013. December’s index reading was 104.0.

“Our Arizona Economic Activity Index shows accelerating growth through the end of 2014 into January this year. For the third consecutive month all 8 components of our Arizona index improved. The strong performance across the board pushed the headline index to its eighth consecutive monthly gain. Payroll job growth is improving and, at 2.6 percent year-over-year in January, has inched its way back above the U.S. average growth rate,” said Robert Dye, Chief Economist at Comerica Bank. “House price growth still lags the national average but an improving state and national economy will create more demand for housing in Arizona this year.”

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For a PDF version of the Arizona Economic Activity Index click here: ArizonaIndex_0315.

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March ADP Jobs, ISM MF Index, February Construction Spending, January Case-Shiller HPI

Grab Bag of Economic Data Consistent with Moderate Growth Economy

  • The March ADP Employment Report showed a moderate increase of 189,000 private-sector jobs.
  • The ISM Manufacturing Index for March eased to a still-positive 51.5 percent.
  • Construction Spending for February was essentially unchanged, easing by 0.1 percent.
  • The Case-Shiller U.S. House Price Index for January was up 4.5 percent over the year.

The grab bag of U.S. economic data released this morning is consistent with a moderate growth economy. Data has been cooler lately than it was through last fall, but that should not be a complete surprise. Real GDP growth of 4.6 to 5.0 percent from the middle of last year is not sustainable for this economy. Neither is consistent robust monthly job growth above 250,000 jobs per month. It feels nice when it happens, but a reversion toward the mean should be expected, and is healthy in the long-run because it reduces the potential for a deeper downside correction. We still believe that this is a 2.5-3.0 percent GDP growth economy, and one that will need to hire something in the neighborhood of 200,000 new workers per month through 2015, not 300,000. The ADP Employment Report for March showed a gain of 189,000 private sector jobs, a step down from the very strong pace we have enjoyed since last fall. This is a decent, reasonable number, and should not be interpreted as a problem in hiring. We will trim our expectations for Friday morning’s official Bureau of Labor Statistics employment report for March, to about 200,000 net new jobs for the month, and no change in the 5.5 percent unemployment rate. We still expect the unemployment rate to finish this year close to a tight 5.0 percent.

The ISM Manufacturing Index for March eased to a still-positive 51.5 percent, indicating that the rate of improvement in the manufacturing sector is slowing. Five out of ten sub-indexes remain in positive territory, including new orders and production. The employment sub-index is exactly at 50.0, indicating no change, and is consistent with the softer than expected ADP jobs data. Bad weather, lower oil prices, a stronger dollar and ongoing delays at West Coast ports were all cited as drags on manufacturing activity.

The Case-Shiller U.S. House Price Index for January showed a 4.5 percent year-over-year increase. On a yearly basis, Denver led the list of 20 cities with an 8.4 percent gain. Miami was a close second at 8.3 percent, followed by Dallas at 8.1 percent. Just for January, San Diego led the list of 20 cities with a 1.9 percent price gain for the month. Housing markets are tight, or getting tight, across most major metropolitan areas. Total construction spending was little changed in February, easing by just 0.1 percent. The value of private residential construction put in place for the month dipped by 0.2 percent. Private nonresidential construction spending increased by 0.5 percent with a gain in office building. Total public construction spending eased by 0.8 percent in February.

Market Reaction: U.S. stock prices opened with losses. The yield in 10-Year T-bonds is down to 1.87 percent. NYMEX crude oil is up to $48.84/barrel. Natural gas futures are down to $2.62/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: ADP 04-01-15.

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