Comerica Economic Weekly

As we get a more complete read on the second quarter, a complex picture emerges. On one hand, we see a stronger consumer sector, but a consumer sector whose appetite for new cars may be sated. Low energy prices are still a support to consumers and to most businesses. On the other hand, low oil prices are thwarting business investment. Also, crude oil and petroleum product inventory drawdowns are weighing on overall GDP growth.

The first estimate of second quarter 2016 real GDP growth was much weaker than expected, registering a modest 1.2 percent annual growth rate. The Q2 GDP numbers are a mixed bag. Inventories were a key drag, declining through the quarter and subtracting 1.2 percentage points from the headline growth rate. Real consumer spending grew at a 4.2 percent annual rate, the strongest spending expansion since the last quarter of 2014. Business investment was weak, declining at a 2.2 percent annual rate. Residential investment was also weak, declining at a 6.1 percent annual rate. Q3 now looks to show moderate overall GDP growth, in the range of 2.0 to 2.5 percent.

New home sales in June increased by 3.5 percent to a 592,000 unit annual rate. While the series is still below its historical average of about 650,000 units per year, it is once again trending up. We expect this to support more single-family permits and starts, which have been range-bound over the last year.

The Case-Shiller U.S. National Home Price Index increased by 0.2 percent for the month, and was up 5.0 percent over the previous 12 months. Price gains through the first five months of 2016 have not been as strong nor as evenly distributed as they were at the end of 2015.

New orders for durable goods fell by 4.0 percent in June. Commercial aircraft orders were down 58.8 percent for the month. Non-aircraft non-defense capital goods orders gained a modest 0.2 percent.

Initial claims for unemployment insurance increased by 14,000 to 266,000 for the week ending July 23. Continuing claims gained 7,000 to hit 2,139,000 for the week ending July 16. We expect payroll employment to increase by about 185,000 jobs in July.

The Conference Board’s Consumer Confidence Index ticked down slightly in July to 97.3, after increasing in June to 97.4. The index has been range-bound since early 2015.

The Bank of Japan voted today to leave their benchmark lending rate unchanged. The BOJ did increase their pace of asset purchases, including exchange-traded stock funds, but the smaller-than-expected move resulted in a strengthening of the yen. Likewise, the Bank of England, the European Central Bank and the Federal Reserve all left their benchmark interest rates unchanged this month. So we ask… is monetary policy coordination back in vogue? Central bankers will have the opportunity to compare notes at the Fed’s annual retreat in Jackson Hole, Wyoming over August 25/26.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 07-29-2016.

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2016Q2 GDP, July UI Claims, Central Bank Recap

  • Real Gross Domestic Product for 2016Q2 increased at a modest 1.2 percent annual rate.
  • Initial Claims for Unemployment Insurance increased by 14,000 to 266,000 for the week ending July 23.
  • The Federal Reserve, the Bank of England, the European Central Bank and the Bank of Japan all left their key lending rates unchanged this month.

The first estimate of second quarter 2016 real GDP growth was much weaker than expected, registering a modest 1.2 percent annual growth rate. First quarter real GDP growth was revised back down to a 0.8 percent growth rate. The Q2 GDP numbers are a mixed bag. Inventories were a key drag, declining through the quarter and subtracting 1.2 percentage points from the headline growth rate. In the long run, the large inventory drawdown is a good thing, setting the stage for more production later. Good news also came from consumer spending, which represents two-thirds of GDP. Real consumer spending grew at a 4.2 percent annual rate, the strongest spending expansion since the last quarter of 2014. Business investment was weak, declining at a 2.2 percent annual rate, held down by low oil prices. Residential investment was also weak, declining at a 6.1 percent annual rate. The weak residential investment numbers are surprising given that both total housing starts and new home sales increased in the second quarter. International trade was a slight positive for Q2 GDP growth. Government spending was a small negative. In the third quarter, we expect the drawdown of petroleum inventories to continue to be a weight on GDP. Mostly likely, consumer spending growth will ease after the very strong second quarter. We expect business fixed investment and residential investment to improve. Trade may be a small drag. Government spending should be a positive. All in, the third quarter now looks to show moderate overall GDP growth, in the range of 2.0 to 2.5 percent.

Labor data looks good. Initial claims for unemployment insurance increased by 14,000 to 266,000 for the week ending July 23. Continuing claims gained 7,000 to hit 2,139,000 for the week ending July 16. We expect payroll employment to increase by about 185,000 jobs in July.

It is worth noting that the Bank of Japan’s Monetary Policy Committee voted today to leave their benchmark lending rate unchanged. The BOJ did increase their pace of asset purchases, including exchange-traded stock funds, which is expected to keep some downward pressure on the value of the yen. Likewise, the Bank of England, the European Central Bank and the Federal Reserve all left their benchmark interest rate unchanged this month. It is purely speculative on our part to ask the question… is monetary policy coordination back in vogue? Central bankers will have the opportunity to compare notes at the Fed’s annual retreat in Jackson Hole, Wyoming over August 25/26.

Market Reaction: Equity markets opened with losses. The 10-year Treasury bond yield dipped to 1.48 percent. NYMEX crude oil is up to $41.36/barrel. Natural gas futures are up to $2.89/mmbtu.

GDP 2016Q2

For a PDF version of this Economic Alert click here: GDP 07-29-16.

 

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Comerica Bank’s Texas Index Ticks Down

Comerica Bank’s Texas Economic Activity Index eased in May, down 0.6 percentage points to a level of 91.5. May’s reading is 19 points, or 26 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. April’s index reading was 92.1.

“Our Texas Economic Activity Index ticked down again for May, after improving in April. We can say that the rate of deterioration in the index is easing, indicating that the Texas economy is still feeling the weight of the reset in the energy sector, but that weight will gradually diminish going forward. The drilling rig count, which serves as our marker for activity in the oil and gas industry, has stabilized with the rebound in oil prices off the February low. In recent weeks the rig count has increased slightly. However, many lagged effects from the dramatic reset in oil prices are still working through the Texas economy,” said Robert Dye, Chief Economist at Comerica Bank. “We look for a gradual flattening out of our Texas Index through the second half of the year, and stabilizing economic conditions in areas with a high concentration of oil-related activity.”

TXStateIndex.7.16

For a PDF version of the Texas Economic Activity Index click here: TexasIndex_0716.

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Comerica Bank’s Michigan Index Dipped as Auto Production Eased

Comerica Bank’s Michigan Economic Activity Index was down 0.6 percentage points in May to a level of 128.3. May’s reading is 54 points, or 73 percent, above the index cyclical low of 74.0. The index averaged 123.7 points for all of 2015, five and four-fifths points above the index average for 2014. April’s index reading was 128.9.

“Our Michigan Economic Activity Index dipped in May after increasing in April. Only two out of eight index components increased for the month. They were initial claims for unemployment insurance (inverted) and the house price index. Auto production, state exports, housing starts, sales tax and hotel occupancy all eased. The push to the Michigan economy from the post-recession rebound in the auto industry is dissipating. Also, the strong dollar and soft global demand are still headwinds for U.S. exports,” said Robert Dye, Chief Economist at Comerica Bank. “We expect the Bank of Japan to take more steps to weaken the value of the yen relative to the dollar and the euro, which will help the Japanese auto industry globally at the expense of U.S. and European automakers.”

MIStateIndex.7.16

For a PDF version of the Michigan Economic Activity Index click here: Michigan_0716.

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Comerica Bank’s California Index Improves

Comerica Bank’s California Economic Activity Index improved by 0.1 percentage points in May to a level of 120.6. May’s reading is 37 points, or 43 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. April’s index reading was 120.5.

“The Comerica Bank California Economic Activity Index improved again in May after gaining in April. The California Index is still caught in the range established since mid-2015. Recent improvements in technology stock prices will help lift the index as we report mid-year results. Job growth for the state has been choppy on a month-to-month basis, but still remains stronger than the U.S. average over the previous year. House prices in San Francisco dipped in April and May, and are now showing a 6.5 percent gain over the past year. This is well down from the near 25 percent year-over-year gains reported in mid-to-late 2013,” said Robert Dye, Chief Economist at Comerica Bank. “We expect to see slower house price appreciation in Northern California through the remainder of this year.”

CAStateIndex.7.16For a PDF version of the  California Economic Activity Index click here: CaliforniaIndex_0716.

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Comerica Bank’s Florida Index Strengthens

Comerica Bank’s Florida Economic Activity Index improved 1.1 percentage points in May to a level of 155.7. May’s index reading is 78 points, or 99 percent, above the index cyclical low of 78.1. The index averaged 138.6 in 2015, twenty and four-fifths points above the average for all of 2014. April’s index reading was 154.6.

“The Comerica Florida Economic Activity Index increased again in May after gaining in April. Revised data now show that the index fell slightly in March, breaking what was then a 23-month winning streak. With the improvement in May, we can say that the Florida Index has increased for 25 out of the last 26 months, indicating strong growth in the Florida economy. Six out of eight index components were positive in May, including employment, state exports, unemployment insurance claims (inverted), house prices, sales tax revenues and hotel occupancy. Only housing starts and enplanements gave up some ground in May. Single-family home sales in Florida are improving and we expect that to support housing starts through the remainder of the year,” said Robert Dye, Chief Economist at Comerica Bank. “Condo sales, however, are weakening and that will work against pricing in over-supplied markets, including Miami.”

FL Index 0716

For a PDF version of the Florida Economic Activity Index click here: FloridaIndex_0716.

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Comerica Bank’s Arizona Index Eases

Comerica Bank’s Arizona Economic Activity Index declined in May, down 0.2 percentage points to a level of 109.2. May’s index reading is 32 points, or 42 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 full-year 2014. April’s index reading was 109.4.

“Our Arizona Economic Activity Index declined in May for the second month in a row. Only two of the eight index components were positive for the month, state exports and hotel occupancy. Negatives for the month were initial claims for unemployment insurance (inverted), housing starts, sales tax revenues and enplanements. Total employment and house prices were neutral for the month. We expect the Arizona economy to continue to expand faster than the national average pace through the second half of this year,” said Robert Dye, Chief Economist at Comerica Bank. “However, the rate of job growth has eased in the Phoenix MSA in recent months, weighing on statewide numbers.”

AZ Index 0716

For a PDF version of the Arizona Economic Activity Index click here: ArizonaIndex_0716.

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Tepid Data Will Not Motivate the Fed to Raise Interest Rates Tomorrow

  • The Consumer Confidence Index ticked down slightly in July from 97.4 to 97.3.
  • New Home Sales for June increased by 3.5 percent to a 592,000 unit annual rate.
  • The U.S. National Case-Shiller Home Price Index was up 5.0 percent in May from a year earlier.

New home sales in June increased by 3.5 percent to a 592,000 unit annual rate. While the series is still below its historical average of about 650,000 units per year, it is once again trending up. This will show up in the GDP accounts as a boost to residential fixed investment in the second quarter. Given our expectation of ongoing job creation and low mortgage rates, we expect to see new home sales continue to improve through the second half of this year. The months’ supply of new homes available for purchase dipped in June to 4.9 months’ worth, fairly tight conditions. This will motivate builders to boost single-family permits and starts, which have been range-bound over the last year. The median sale price of a new home increased in June to $306,700, a 6.1 percent increase over the previous 12 months. As previously reported, existing home sales increased by 1.1 percent in June to a 5.57 million unit annual rate.

Overall house prices, as measured by the Case-Shiller U.S. National Home Price Index, continue to increase. However, price gains through the first five months of 2016 have not been as strong nor as evenly distributed as they were at the end of 2015. In May, the national index increased by 0.2 percent for the month, and was up 5.0 percent over the previous 12 months. Several cities in the Case-Shiller 20 city index reported slight price declines for the month, including Atlanta, Cleveland, Detroit and Los Angeles. New York house prices were down a moderate 0.5 percent in May, while San Francisco registered a bigger 1.3 percent drop.

The Conference Board’s Consumer Confidence Index ticked down slightly in July to 97.3, after increasing in June to 97.4. The index has been range-bound since early 2015. It is above its historical average of 93.6 since 1967, but it has not shown a typical mid-cycle surge so far in the current business cycle. However, we could turn that analysis on its head and say that this is the typical mid-cycle surge, and it is happening at a lower level. Time will tell.

The Federal Reserve Bank of Richmond released a couple of data points for South Atlantic states. Their survey of Fifth (Federal Reserve) District manufacturing activity improved in July, as did service sector activity. We do not expect the Federal Open Market Committee, which is meeting today and tomorrow, to increase the fed funds rate. We will read the policy statement tomorrow to see if there are any hints about a later interest rate hike, possibly coming as early as September 21. Between now and then, the Federal Reserve will also have its annual conference in Jackson Hole, Wyoming in late August. That will be another opportunity for Federal Reserve officials and global central bankers to compare notes.

Market Reaction: U.S. equity markets are mixed. The 10-year Treasury bond yield is up to 1.58 percent. NYMEX crude oil is down to $42.86/barrel. Natural gas futures are down to $2.69/mmbtu.

Economic Alert 072616

For a PDF version of this Comerica Economic Alert click here: New_Home Sales 07-26-16.

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Comerica Economic Weekly

U.S. economic data released this week was generally positive and consistent with an ongoing moderate GDP expansion in the third quarter.

The Conference Board’s Leading Economic Index for June increased by 0.3 percent, consistent with our expectations of an ongoing moderate expansion for the U.S. economy in the third quarter. We expect to see the Leading Index show consistent gains through the second half of 2016, indicating ongoing momentum as we turn the corner into 2017.

Initial claims for unemployment insurance dipped by 1,000 for the week ending July 16, to a very low 253,000. Continuing claims fell by 25,000 to hit 2,128,000 for the week ending July 9. Given these strong numbers, we expect July payroll job gains to be solid, in the vicinity of about 195,000 jobs.

Housing starts improved in June, but remained within the range established in the second quarter of 2015. Total starts increased by 4.8 percent in June to a 1.189 million unit annual rate. Total housing starts are still below the estimated rate of household formation.

According to the National Association of Homebuilders, builder sentiment ticked down slightly in July to 59. Builders’ expectations of future sales declined, perhaps in reaction to financial news chatter about BREXIT. We believe that long-term underbuilding, moderate economic growth and low interest rates mean that the demand is out there to support increases in the rate of construction through the remainder of this year.

Existing home sales increased in June by 1.1 percent, to hit a 5.57 million unit annual rate. This is the strongest sales rate since February 2007. Months’ supply of existing homes dipped to 4.6 months’ worth, fairly tight conditions nationwide. The median sales price of an existing home was up by 4.8 percent in June over the previous 12 months.

European Central Bank President Mario Draghi said there would be no new stimulus from the ECB this month, despite the BREXIT vote and the recent terrorism in Nice, France. Draghi commented on the “encouraging market resilience” of the EU economy, but left the door open for more stimulus later, if needed. Next week we expect the U.S. Federal Reserve to follow suit and leave the fed funds rate unchanged. We will be watching to see if there are any hints that the Fed is considering lifting interest rates in September. We expect the Bank of Japan to break ranks and announce additional stimulus at their July 28/29 Monetary Policy Committee meeting.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 07-22-2016.

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June Leading Indicators, Existing Home Sales, July UI Claims, Central Banks

 “Encouraging Market Resilience”

  • The Conference Board’s Leading Economic Index for June increased by 0.3 percent.
  • Existing Home Sales for June increased by 1.1 percent to a 5.57 million unit annual rate.
  • Initial Claims for Unemployment Insurance fell by 1,000 for the week ending July 16 to 253,000.
  • We expect no change in interest rate policy at next week’s FOMC meeting.

The Conference Board’s Leading Economic Index for June increased by 0.3 percent, consistent with our expectations of an ongoing moderate expansion for the U.S. economy in the third quarter. The Coincident Index, which focuses on current conditions, also increased by 0.3 percent. The Lagging Index dipped by 0.1 percent in June. Of the ten components of the Leading index, eight were positive for the month. The biggest push came from initial claims for unemployment insurance (inverted), residential building permits and stock prices. The only negative component was average weekly hours for manufacturers. June is only the second positive month for the Leading Index in the last seven months. Weak stock prices early this year are a part of that story. Conversely, recent gains in stock prices will help boost the July index. We expect to see the Leading Index show more consistent gains through the second half of 2016, indicating ongoing momentum as we turn the corner into 2017.

Existing home sales increased in June by 1.1 percent, to hit a 5.57 million unit annual rate. This is the strongest sales rate since February 2007. The recent trend looks positive. Sales of existing homes are reasonably close to their long run average, in contrast to sales of new homes which remain historically weak. Months’ supply of existing homes dipped to 4.6 months’ worth, fairly tight conditions nationwide. The median sales price of an existing home was up by 4.8 percent in June over the previous 12 months.

Initial claims for unemployment insurance dipped by 1,000 for the week ending July 16, to a very low 253,000. Continuing claims fell by 25,000 to hit 2,128,000 for the week ending July 9. Given these strong numbers, we expect July payroll job gains to be solid, in the vicinity of about 195,000 jobs.

European Central Bank President Mario Draghi said there would be no new stimulus coming from the ECB this month, despite the BREXIT vote and the recent terrorism in Nice, France. Draghi commented on the “encouraging market resilience” of the EU economy, but left the door open for more stimulus later, if needed. This follows on the heels of the Bank of England’s similar non-action last week. Next week we expect the U.S. Federal Reserve to follow suit and leave the fed funds rate unchanged. We will be watching to see if there are any hints that the Fed is considering lifting interest rates in September. After the FOMC meeting next Tuesday and Wednesday, the Fed has its annual retreat in Jackson Hole, Wyoming. This will give U.S. and global central bankers the opportunity to discuss strategy for the fall. We expect the Bank of Japan to break ranks and announce additional stimulus at their July 29 Monetary Policy Committee meeting.

Market Reaction: Equity markets opened with losses. The 10-Year Treasury bond yield is down to 1.57 percent. NYMEX crude oil is down to $45.11/barrel. Nat gas futures are up to $2.65/mmBTU.

Economic Alert 072116

For a PDF version of this Comerica Economic Alert click here:Leading Indicators 07-21-16.

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