Houston Continues to Roll

The Houston metro area economy continues to be fueled by strong regional and international energy markets. With rising U.S. exports of petroleum products, the linkage between U.S. and international oil prices is strengthening, keeping the pressure on U.S. production and exploration. Payroll employment for the Houston MSA was up 3.0 percent in April from a year earlier, representing a total of 82,300 jobs gained. The area’s unemployment rate  was down to 5.4 percent as of March, well below the U.S. average of 6.7 percent for that month. The Houston economy is growing so rapidly that construction workers are reported as being in tight supply.

Also, Houston-area energy companies stand to gain from the opening up of Mexico’s energy sector. Pemex, Mexico’s state-owned petroleum exploration and production company, will soon relinquish its monopoly position. Private bidding on Mexican oil and gas leases is expected to begin by mid-2015. M&A activity in the energy sector is still heating up after a strong finish to 2013. Many energy giants are divesting non-core assets, creating opportunities for more nimble, smaller firms.

The very strong growth in Houston must be weighed against Stein’s Law, which says that if something can’t go on forever, it won’t. We are seeing slower year-over-year job growth now than a year ago. In April 2013, payroll employment for Houston was up 4.0 percent over the previous 12 months. However, for now, all signs are pointing to ongoing robust growth for the remainder of this year. With upstream supply rapidly being developed, downstream applications are coming to Houston. BASF and Yara have recently announced plans to build a “world scale” ammonia plant in nearby Freeport. Downstream companies may look to become more integrated with upstream supply, adding to the M&A boom.

Houston 2014Q1

Click here for the complete Houston MSA Regional Economic Update: Houston 2014Q1.

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Austin Continues to Grow

Austin, one of the fastest growing tech metros in the U.S., comprises about 8.0 percent of the total nonfarm payroll jobs in Texas. In the first quarter of 2014, Austin added a net of 3,500 nonfarm payroll jobs, about 4,900 fewer jobs compared to the first quarter of 2013. Stated a different way, Austin created 3.8 percent of the total nonfarm jobs created in the state of Texas during the first quarter of 2014, compared to 10.5 percent in the first quarter of 2013. Although job growth looks a bit softer in early 2014, Austin is still one of the strongest performers in terms of job growth, beating the U.S. average by over 2.1 percent on a year-over-year basis in 2014Q1. We expect job growth to be around 4.0 percent on an annual basis through 2014 as the region attracts people and businesses from across the country because of its pro-business environment.

Austin’s unemployment rate declined to 4.6 percent in 2014Q1 from 5.0 percent of the previous quarter. As of March 2014, about 45,980 people are unemployed in the Austin area compared to 53,900 a year ago. The decline in unemployment came from an increase in both employment and labor force growth, a positive signal for the economy. We expect Austin’s unemployment to decline continuously through 2014 due to ongoing strong job creation. Austin saw a decline in housing starts in the beginning of 2014 because of weak multifamily starts after a strong surge in the previous quarter. We expect total housing starts to rebound this summer and grow steadily through 2014. House prices are expected to grow moderately above the national average in 2014 and 2015. House prices are already at a historic high in the area.

Moderate U.S. economic growth is expected to spur consumer and business demand for tech products and services such as computer equipment, communication equipment, software, information technology and telecommunication services. In turn, we expect Austin’s job growth to be strong in professional and business services, trade, transportation, warehousing, utilities, leisure/hospitality, and other service-producing sectors in 2014.

Austin 2014Q1

Click here for the complete Austin MSA Regional Economic Update: Austin 2014Q1.

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Comerica Bank’s Florida Index Falls in March

Comerica Bank’s Florida Economic Activity Index fell 1.6 percentage points in March, to a level of 116.1. March’s index reading is 36 points, or 44 percent, above the index cyclical low of 80.6. The index averaged 115 in 2013, 10 points above the average for all of 2012. February’s index reading was unchanged at 117.7.

“Our Florida Economic Activity Index fell in March as residential building permits reset following a strong February. Likewise, we saw hotel occupancy rates reset for the state following strong numbers in December and January. Fortunately, payroll employment for Florida did increase in March, supporting our view that the Florida economy will continue to improve through the second half of this year,” said Robert Dye, Chief Economist at Comerica Bank. “We expect to see both residential and nonresidential property markets firm up, to the benefit of the overall state economy.”

FL Index 0514

For a PDF version of the Florida Economic Activity Index click here: FloridaIndex_0514.

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Comerica Bank’s Arizona Index Eases in March

Comerica Bank’s Arizona Economic Activity Index fell slightly in March, declining 0.7 percentage points to a level of 103.7. March’s index reading is 32 points, or 45 percent, above the index cyclical low of 71.3. The index averaged 96 points for all of 2013, nine points above the average for full-year 2012. February’s index reading was unchanged at 104.4.

“Our Arizona Index eased in March, breaking a string of four consecutive monthly increases. However, nonfarm payroll employment for Arizona improved in March after decreasing in February. A major contributing factor to the dip in our Arizona Index in March was an increase in continuing claims for unemployment insurance for the month. That increase runs counter to the previously mentioned improvement in payroll jobs in Arizona in March,” said Robert Dye, Chief Economist at Comerica Bank. “We already know that continuing claims for unemployment insurance eased in April. So the March gain in continuing claims looks like an anomaly. We expect the Arizona economy to continue to improve through the second half of this year.”

AZ Index 0514

For a PDF version of the Arizona Economic Activity Index click here: ArizonaIndex_0514.

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Comerica Economic Weekly

Home sales and Fed chatter dominated this week’s U.S. economic scene.

Housing markets look like they are going in the right direction after a winter stall. April new home sales increased by 6.4 percent to reach a 433,000 unit rate and the weak March numbers were revised up. Existing home sales hit a peak last July, at a 5.38 million unit rate, and then declined in 7 of the next 8 months. Fortunately, in April, existing home sales increased slightly by 1.3 percent to hit an annual rate of 4.65 million units. We expect that improving economic conditions across most U.S. localities will fuel ongoing gains in existing home sales.

The Conference Board’s Leading Economic Index increased by 0.4 percent in April, following a strong 1.0 percent gain in March. The Coincident index was up by 0.1 percent in April and the Lagging index was up by 0.2 percent.

Initial claims for unemployment insurance zagged back up by 28,000 to hit 326,000 for the week ending May 17, after zigging down the week before. The trend remains consistent with ongoing improvement in labor market conditions. Continuing claims for the week ending May 10 eased by 13,000 to hit 2,653,000, the lowest level for that series since December 1, 2007.

The minutes of the April 29/30 FOMC meeting and commentary by various FOMC members this week show that an active discussion is going on within the Fed about how to renormalize interest rates. Fed officials made it very clear that this discussion does not imply an accelerated schedule for interest rate lift-off. What it does mean is that the Fed will have an array of new tools for managing interest rates, beyond traditional open market operations.

The acronym ONRRP will become part of the economic lexicon. A new tool, overnight reverse repurchase operations appear likely to figure prominently in Federal Reserve interest rate policy going forward. This liquidity-draining device may increase the interest rate transmission role that money-market mutual funds have.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 05-23-14.

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April Existing Home Sales, Leading Indicators, May UI Claims

Existing Home Sales Stabilize After a Big Slide

  • Existing Home Sales for April ticked up by 1.3 percent, to an annual rate of 4.65 million units.
  • The Conference Board’s Leading Economic Index increased by 0.4 percent in April.
  • Initial Claims for Unemployment Insurance rose by 28,000 to hit 326,000 for the week ending May 17.

The demand for housing is fundamentally a local issue. However, mortgage availability is increasingly a national issue. Within the confluence of local and national impulses, there is a balance of traditional home buyers and institutional buyers. Prices, now up 11.4 percent year-over-year according to the Case-Shiller U.S. House Price index, add a complex dynamic. So too does the lingering swamp of underwater homes, recently estimated by Zillow at 9.7 million, representing 19.8 percent of U.S. homeowners. Add to the mix the fact that mortgage rates increased rapidly in the second half of last year. The result of these varied forces is an existing home market that is in flux. Existing home sales hit a peak last July, at a 5.38 million unit rate, and then declined in 7 of the next 8 months. Fortunately, in April, existing home sales increased slightly by 1.3 percent to hit an annual rate of 4.65 million units. We expect that improving economic conditions across most U.S. localities will fuel ongoing gains in existing home sales. Flattish mortgage rates since the middle of 2013 are helping. More help may come from a relaxation of some credit standards by mortgage processors Fannie Mae and Freddie Mac. Federal Housing Finance Agency Director Mel Watt (Mr. Watt is both the conservator and head regulator of Fannie Mae and Freddie Mac) has recently been quoted saying that Fannie and Freddie should continue to improve liquidity in the single-family housing market.

The Conference Board’s Leading Economic Index increased by 0.4 percent in April, following a strong 1.0 percent gain in March. The five components of the Leading Index that were up in April, in order of positive contribution: interest rate spread, residential building permits, the Leading Credit Index, manufacturers’ new orders for consumer goods and materials, and consumer expectations of business conditions. The Conference Board’s Coincident index was up by 0.1 percent in April and its Lagging index was up by 0.2 percent. Initial claims for unemployment insurance zagged back up by 28,000 to hit 326,000 for the week ending May 17, after zigging down the week before. The trend remains consistent with ongoing improvement in labor market conditions. Continuing claims for the week ending May 10 eased by 13,000 to hit 2,653,000, the lowest level for that series since December 1, 2007.

Market Reaction: U.S. equity markets are up. Treasury yields are up at the long end of the yield curve. NYMEX crude oil is down to $103.93/barrel. Natural gas futures are down to $4.39/mmbtu.

Economic Alert 052214

For a PDF version of this Comerica Economic Alert click here: Existing Home Sales 05-22-14.

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Comerica Bank’s California Index Down Slightly in March

Comerica Bank’s California Economic Activity Index was essentially unchanged in March, down just 0.1 percentage points to a level of 108.8. March’s reading is 36 points, or 50 percent, above the index cyclical low of 72.7. The index averaged 106 points for all of 2013, five points above the average for all of 2012. February’s index reading was revised down to 108.9.

“Our California Economic Activity Index ticked down very slightly in March, essentially unchanged for the month. Three out of eight components were negative, including state exports, hotel occupancy and the Silicon Valley 150 stock market index. Also, residential building permits are improving, but remain below the high rates of the fourth quarter of last year. On the plus side, payroll job growth ticked up and state sales tax receipts improved in March,” said Robert Dye, Chief Economist at Comerica Bank. “We expect our California Index to continue its upward trend through the remainder of this year, consistent with an expanding state economy.”

CA Index 0514

For a PDF version of the California Economic Activity Index click here: CaliforniaIndex_0514.

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Comerica Bank’s Texas Index Declines in March

Comerica Bank’s Texas Economic Activity Index dipped 2.4 percentage points in March to a level of 107.3. March’s reading is 36 points, or 50 percent, above the index cyclical low of 71.6. The index averaged 105 points for all of 2013, three points above the average for full-year 2012. February’s index reading was unchanged at 109.7.

“Our Texas Index dipped for the third consecutive month in March. Payroll employment was unchanged for the month. Fortunately, we already know that payroll employment in Texas had a strong rebound in April, and that will support the index going forward. Also, residential building permits remain below their 2013 year-end highs. We expect that residential construction indicators will improve soon, consistent with strong job and demographic trends,” said Robert Dye, Chief Economist at Comerica Bank. “So despite what we view as a temporary dip in our Texas index, we remain optimistic about the Texas economy, and we expect our Texas Index to soon resume its upward track.”

TX Index 0514

For a PDF version of the Texas Economic Activity Index, click here: TexasIndex_0514.

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Comerica Bank’s Michigan Index Dips Again in March

Comerica Bank’s Michigan Economic Activity Index declined in March, falling 2.5 percentage points to a level of 120.9. March’s reading is 49 points, or 68 percent, above the index cyclical low of 72.1. The index averaged 126 for all of 2013, 12 points above the index average for 2012. February’s index reading was unchanged at 123.4.

“Our Michigan Index fell again in March, now its fifth consecutive decline. Payroll employment in Michigan was little changed over the 12 months ending in March. This is worrisome because stalled payroll employment levels in Michigan are most often followed by job losses. Even with expected gains in national auto sales into 2015, auto-related employment in Michigan may be topping out,” said Robert Dye, Chief Economist at Comerica Bank. “We expect to see more residential construction activity in the months ahead, and this will help to support Michigan’s economy.”

MI Index 0514

For a PDF version of the Michigan Economic Activity Index click here: Michigan0514.

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Comerica Economic Weekly

U.S. economic data were mixed this week, but remain consistent with an improvement in Q2 GDP growth after an anemic Q1 reading of 0.1 percent (that looks to be revised down to a small negative). Inflation metrics warmed up in April. The PPI for final demand gained a strong 0.6 percent in April after increasing by 0.5 percent in March. Wholesale food prices gained a noticeable 2.7 percent for the month, pushed up by drought conditions in California, now for the third consecutive year in some areas. Shipping bottlenecks left over from the severe winter, combined with bottlenecks in rail transport, have resulted in very high demand for trucking services. This put upward pressure on the prices of many goods, both at the wholesale level and at the retail level.

The Consumer Price Index for April was up more than expected, by 0.3 percent. Food prices were up 0.4 percent for the third month in a row. Increasing house prices and rents are having an effect. The index for shelter was up 0.2 percent in April. The core CPI (less food and energy) was up 0.2 percent, and is now up 1.8 percent on a year-over-year basis. If we add to the picture rapidly declining unemployment rates in some areas, upside pressure on average hourly earnings and weak productivity growth, we start to see some potential for stronger inflation as the U.S. economy accelerates this year.

Industrial production in April dipped by 0.6 percent as utility output fell by 5.3 percent, clearly weather-related. However, most manufacturing industries were weak as well. Overall manufacturing declined by 0.4 percent in April, after solid gains in February and March.

The Empire State Manufacturing Survey for May showed a strong uptick in manufacturing conditions for the New York region. The Philadelphia Fed’s Business Outlook Survey ticked down slightly in May, but remained firmly in positive territory.

New claims for unemployment insurance fell by 24,000 to hit a level of 297,000, the lowest level since May 2007. Continuing claims fell by 9,000 to hit 2,667,000 for the week ending May 3.

Residential construction activity picked up in April. Housing starts increased by 13.2 percent for the month, to an annual unit rate of 1,072,000. Permits increased by 8.0 percent, to a 1,080,000 unit rate.

Retail sales for April gained just 0.1 percent, despite reasonably solid performances from most major categories. The big drag on headline sales came from electronics and appliance stores which blew a fuse, declining by 2.3 percent in April. We expect to see solid consumer spending numbers this spring and summer.

The National Federation of Independent Business’s Small Business Optimism Index surged in April, up to 95.2, its strongest reading since October 2007.

Total business inventories were up by a modest 0.4 percent in March, consistent with the weaker Q1 inventory numbers in the GDP report.

The University of Michigan’s Consumer Sentiment Index ticked down to 81.8 in early May. We expect consumer sentiment to maintain an upward trend this year.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 05-16-14.

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