October U.S. Employment

Labor Market Metrics Continue to Improve

  • The October Payroll Employment Survey showed a gain of 214,000 payroll jobs.
  • The Unemployment Rate for October dropped to 5.8 percent.
  • Average Weekly Hours for all employees increased by one-tenth to 34.6 hours in October.
  • Average Hourly Earnings were up by 0.1 percent in October and by 2.0 percent over the previous 12 months.

The October labor data are consistent with an ongoing moderate GDP expansion. Total payroll employment increased by 214,000, a little below expectations of about 230,000, but still a good number. August and September jobs numbers were revised up. Remember the weaker-than-expected August job gain of 142,000? Well don’t. It has been revised up to 203,000. The unemployment rate dropped a tenth to 5.8 percent with a very large 683,000 job increase in household employment. In October, the average workweek increased by a tenth to 34.6 hours. Average hourly earnings increased by 0.1 percent. In short, a good report.

A U.S. unemployment rate below about 5.5 percent is consistent with accelerating wages, so we are starting to get into the zone where the Federal Reserve will be studying and debating signs of wage inflation. The overall inflation picture is complicated by falling energy prices and by a stronger dollar. At the same time that we have increasing inflation potential from tightening labor markets, we have decreasing inflation from lower energy prices and from falling import prices due to a strengthening dollar. The Federal Reserve will be looking at inflation indicators very carefully in the months ahead as it contemplates the next step in normalizing monetary policy, interest rate lift-off.

Lower oil prices, in the $80-$70 per barrel range for WTI, will keep production strong in the U.S. However, we will see more reports of expensive new exploration projects being reduced or curtailed. Lower oil prices are positive for energy consuming industries and regions, adding to corporate profit margins and supporting non-energy consumer spending. This will shift economic growth marginally toward energy consuming regions (the East and West Coasts), putting more downward pressure on unemployment rates there.

Job gains in October were broadly distributed across industries. Oil and gas extraction added 2,500 jobs in October. We expect to see job growth in oil and gas extraction ease in the months ahead, reflecting lower oil prices. Construction industries added 12,000 jobs in October with gains in residential building activity. Manufacturing was strong, adding 15,000 jobs, mostly in durable goods industries. Wholesale trade employment was up by 8,500. Retail trade added 27,100 jobs, preparing for what we expect to be a good holiday shopping season. Transportation and warehousing employment was up by 13,300. Financial industries added only 3,000 jobs. Employment in professional and business services increased by 37,000 jobs. Education and healthcare was up a strong 41,000 jobs. Leisure and hospitality employment surged by 52,000 jobs. Lower gasoline prices will help there. Government employment was up by 5,000 jobs in October.

Market Reaction: U.S. equity markets opened with losses. The 10-Year T-bond yield is down to 2.34 percent. NYMEX crude is down to $78.74/barrel. Natural gas futures are down to $4.45/mmbtu.

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For a PDF version of this Comerica Economic Alert click here:Employment 11-07-14.

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October ADP Employment, ISM Non-MF Index

U.S. Economic Data Looks Strong Heading into Q4

  • The October ADP Employment Report showed a strong gain of 230,000 private-sector jobs.
  • The ISM Non-Manufacturing Index for October eased to a still strong 57.1 percent.

The ADP National Employment Report for October showed a strong gain of 230,000 private sector jobs for the month. Government sector job gains have averaged about 6,000 per month this year. If we assume ADP is an unbiased estimator for the official BLS job count, we can add 6,000 to 230,000 to get an estimate of 236,000 total payroll jobs added in October. The official BLS numbers are due out this Friday morning at 8:30 Eastern Time. The ADP numbers show a strong gain of 102,000 net jobs by small businesses (with less than 50 employees). Medium-sized businesses (50-499 employees) added a strong 122,000 jobs in October. Large businesses (over 500 employees) added only 5,000 jobs in October. The relatively meager large business payroll gains for October are a noticeable downshift from previous months. The January through September average gain for large businesses is about 50,000 jobs per month. Overall this looks like a solid report justifying positive expectations for the official jobs numbers on Friday. We will continue to monitor large business job creation to see if October was an inconsequential blip, or the start of a trend. Even with a gain of about 236,000 total payroll jobs for October, we may not see a decline in the 5.9 percent unemployment rate reported in September. The civilian labor force declined through August and September, helping to pull the unemployment rate down. So we are due for a snap back in the labor force count. If that is reported for October, the unemployment rate could stay at 5.9 percent even with solid job growth.

The ISM Non-Manufacturing Index for October eased to 57.1 from September’s 58.6. This is still a strong reading for the index, consistent with an ongoing moderate GDP expansion through the fourth quarter. Eight out of 10 sub-indexes were solidly in expansion territory, including production, new orders and employment. Only supplier deliveries and inventories fell just below the break-even 50 mark, both hitting 49.5 for the month. Sixteen out of 18 industries reported expansion, only two – arts/entertainment/recreation and finance/insurance reported contraction. Anecdotal comments were mixed, ranging from positive to uncertain. This is not surprising given that the survey was in the field in early October at the time of the stock market sell-off.

Market Reaction:U.S. stock prices opened with gains following the mid-term election results. The yield on 10-Year T-bonds is up to 2.36 percent. NYMEX crude oil is up to $79.20/barrel. Natural gas futures are up to $4.30/mmBTU.

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For a PDF version of this Comerica Economic Alert click here: ADP 11-05-14.

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September International Trade, Oil Prices, October Auto Sales

Trade Gap Widens, Implies Negative Revision to Q3 GDP

  • The U.S. International Trade Gap widened to -$43.0 billion in September.
  • Oil Prices are down as Saudi Arabia cut prices. WTI is trading at $77 per barrel.
  • Light Vehicle Sales ticked up to a 16.5 million unit annual rate in October.

The U.S. international trade gap widened by $3 billion to $43.0 billion in October. This implies a negative revision to Q3 real GDP growth which was announced last week at a 3.5 percent annual rate. Shaving off Q3 real GDP due to weaker-than-expected trade and construction spending in September, we expect to see a revision to about 3.0 percent real GDP growth for Q3. Nominal imports increased marginally in September, by $0.1 billion on a slight increase in the imports of services. Nominal exports decreased by $3.0 billion with most of the drag on the goods side. Even after accounting for price declines, real petroleum exports dipped after increasing through July and August. Trade is a complicated story now. The U.S. economy is in mid-cycle, growing moderately, which typically means increasing imports. However, we are developing our export capacity for energy and other manufactured products. Also, lower global energy prices are a drag on U.S. exports as low energy prices put high cost drilling projects out of the money. Meanwhile, the desynchronization of global monetary policy is acting to elevate the value of the dollar, particularly against the yen and the euro, making U.S. exports more expensive and imports cheaper.

Saudi Arabia cut its crude export price to U.S. customers, pushing future prices for West Texas Intermediate lower. The NYMEX front-month contract for WTI was below $77 per barrel at publication time. High U.S. inventories are also a drag on energy prices. We expect to see more announcements of cutbacks in the most expensive U.S. projects, but the bulk of U.S. production remains profitable in the $70 to $80 per barrel range. Saudi Arabia appears to be fighting to preserve market share against a rapidly rising sea of U.S. oil. It is unclear at this time how long the Saudis can sustain lower prices with-out straining their fiscal position. Lower oil prices have the potential to shift the regional pattern of growth in the U.S. away from the eastern edge of the Rockies and back toward the coasts, if sustained.

Auto sales were little changed in October, ticking up to a 16.5 million unit pace from September’s 16.4 million. Lower gasoline prices will help sales of SUVs and trucks this winter. It looks like we are at an interesting inflection point for auto sales. Solid job growth, increasing consumer confidence and lower oil prices all point to ongoing gains. However, if we remove the August surge to a 17.5 million unit sales rate, auto sales look range bound since last May. Our expectation is that auto sales improve in November, but if they do not, then August looks more like an aberration than an increasing trend.

Market Reaction: U.S. equity prices are down. The 10-year Treasury yield is down to 2.32 percent. NYMEX crude oil is down to $76.27/barrel. Natural gas futures are up to $4.22/mmbtu

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For a PDF version of this Comerica Economic Alert click here: Int Trade 11-04-14.

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Comerica Bank’s Florida Index Continues to Advance in August

Comerica Bank’s Florida Economic Activity Index improved in August, growing 0.7 percentage points to a level of 119.5. August’s index reading is 41 points, or 53 percent, above the index cyclical low of 78.0. The index averaged 109.2 in 2013, ten and one half points above the average for all of 2012. July’s index reading was 118.8.

“Our Florida Economic Activity Index increased in August for the fifth consecutive month. As in most other states, Florida labor market indicators are steadily improving. Payroll jobs in Florida for August were up by 2.7 percent over the previous 12 months, well above the national average increase of 1.9 percent. Continuing claims for unemployment insurance in Florida are approaching the lows of early 2006,” said Robert Dye, Chief Economist at Comerica Bank. “We expect to see residential housing markets continue to improve late this year and carry that momentum into 2015. Strong job creation, improving consumer confidence and easing credit conditions are all positives for Florida’s housing market.”

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For a PDF version of the Michigan Economic Activity Index click here: FloridaIndex_1014.

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Comerica Bank’s Arizona Index Improves in August

Comerica Bank’s Arizona Economic Activity Index grew in August, increasing 0.6 percentage points to a level of 99.8. August’s index reading is 23 points, or 30 percent, above the index cyclical low of 76.7. The index averaged 95 points for all of 2013, seven points above the average for full-year 2012. July’s index reading was 99.2.

“Our Arizona Economic Activity Index increased in August, reflecting broad-based gains to the state economy. Six out of eight components of our index either improved or were flat in August; only housing starts and enplanements dipped. We expect Arizona house prices to firm up through the fall, supported by job growth, improving consumer confidence, lower gasoline prices and easing credit conditions,” said Robert Dye, Chief Economist at Comerica Bank. “Lower gasoline prices are also a boost to the state’s tourism industry, making travel cheaper and increasing discretionary consumer spending.”

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For a PDF version of the Michigan Economic Activity Index click here: ArizonaIndex_1014.

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Comerica Bank’s Michigan Index Grew Again in August

Comerica Bank’s Michigan Economic Activity Index grew in August, increasing 0.2 percentage points to a level of 120.4. August’s reading is 47 points, or 63 percent, above the index cyclical low of 73.8. The index averaged 114.2 points for all of 2013, seven and one-tenth points above the index average for 2012. July’s index reading was 120.2.

“Our Michigan Index continued to climb higher in August, indicating ongoing gains for the state economy. Six of the eight index components either improved or held steady in August. Only state exports and house prices eased. Automobile production remains a strong positive for Michigan. Recent declines in the price of gasoline and improvements to consumer confidence are positive indicators for the auto sector,” said Robert Dye, Chief Economist at Comerica Bank. “We also expect house prices to firm up through the fall, supported by recently firmer job growth in Michigan, and easing conditions for housing finance across the U.S.”

StateIndex1014Michigan

For a PDF version of the Michigan Economic Activity Index click here: Michigan_1014.

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October ISM Manufacturing, September Construction Spending

Strong ISM MF Report Bolsters Case for Solid U.S. Economy, Despite Global Headwinds

  • The ISM Manufacturing Index for October increased to a robust 59.0 percent.
  • October Construction Spending dipped by 0.4 percent, with easing public construction.

Let’s not call it Fortress America, because the U.S. economy is intricately linked to global markets. However, U.S. economic indicators are continuing a strong run, helping equity prices challenge new highs shortly after their early October swoon. The ISM Manufacturing Index for October recaptured the robust reading of 59.0 that it had in August, tying the highest reading since March 2011. Nine out of ten subcomponents of the ISM-MF Index increased in October. The new orders sub-index was very strong at 65.8. Production was not far behind at 64.8. Of the 18 reporting industries, 16 reported growth in October. Leading the gains were rubber and plastics products, followed by textile mills and fabricated metal products. Anecdotal comments were positive. Today’s ISM-MF report for October highlights a strong U.S. economy heading into year end, despite evidence that the global economy is facing headwinds. The euro-zone is slumping once again and growth in China, while still strong, is slowing down. Lower oil prices, in the vicinity of $80 per barrel will generally be a positive for the manufacturing sector, helping to increase profit margins on the way down. However, significantly lower oil prices will potentially drag on industries that are directly linked to oil field drilling and exploration activity, including some components of the fabricated metals industry.

 Total construction spending in the U.S. decreased by 0.4 percent in September. Private residential construction was positive for the month, gaining 0.4 percent on strength in single-family projects. Private non-residential construction spending eased by 0.6 percent in September, with a dip in spending on power plant projects. Public construction spending eased by 1.3 percent with reduced spending on highways and streets.

Market Reaction: U.S. equity prices are giving back opening gains. The yield on 10-Year Treasury bonds is up to 2.37 percent. NYMEX crude oil is down to $80.11/barrel. Natural gas futures are up to $4.11/mmbtu.

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For a PDF version of this Comerica Economic Alert click here: ISM-MF 11-03-14.

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Comerica Bank’s California Index Advances in August

Comerica Bank’s California Economic Activity Index grew in August, climbing 1.2 percentage points to a level of 114.6. August’s reading is 31 points, or 37 percent, above the index cyclical low of 83.8. The index averaged 106.2 points for all of 2013, five and one-half points above the average for all of 2012. July’s index reading was 113.4.

“Our California Economic Activity Index increased again in August, propelled by improvements in labor market conditions. Both payroll jobs and continuing claims for unemployment insurance improved at the end of summer. Housing market activity remains strong as shown by increasing housing starts. However, house price growth eased over the summer. Los Angeles, San Diego and San Francisco have all shown flat to slightly declining prices in late summer, but we expect prices to stabilize and then increase through 2015,” said Robert Dye, Chief Economist at Comerica Bank. “Lower gasoline prices, improving consumer confidence, job creation and easing credit conditions are all positives for the California housing market.”

StateIndex1014California

For a PDF version of the California Economic Activity Index click here: CaliforniaIndex_1014.

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Comerica Bank’s Texas Index Advanced in August

Comerica Bank’s Texas Economic Activity Index grew in August, increasing 0.7 percentage points to a level of 106.0. August’s reading is 33 points, or 46 percent, above the index cyclical low of 72.6. The index averaged 100.3 points for all of 2013, two and one-tenth points above the average for full-year 2012. July’s index reading was 105.3.

“The Texas economy continued to advance strongly in August, according to our Texas Economic Activity Index. Seven out of eight components of the index improved or held steady. Only housing starts eased. The drilling rig count remained strong through August, even as oil prices began to fall. With the ongoing slide in crude oil prices into October, I expect to see a levelling out of oil field activity. But current prices near $81 per barrel can sustain a healthy Texas energy sector,” said Robert Dye, Chief Economist at Comerica Bank. “We do not expect oil prices to plunge lower. However, that is a downside risk to the Texas economy that we are monitoring carefully.”

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For a PDF version of the Texas Economic Activity Index, click here: TexasIndex_1014.

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Comerica Economic Weekly

October ended with a treat and not a trick. U.S. equity indexes are approaching all time highs at the end of October, reversing a month-long slide that began in mid-September. The rebound in U.S. equity prices and the change in mood at month-end is supported by solid U.S. economic data and consistency at the Federal Reserve.

Third quarter GDP was stronger than we expected, with real GDP growth registering a solid 3.5 percent annualized growth rate. As usual, with the GDP report, the devil is in the details. But growth is growth, so a 3.5 percent Q3, following on the heels of a 4.6 percent Q2, makes a statement about ongoing momentum in the U.S. economy. Of note in the GDP report was stronger-than-expected federal government defense spending, which surged at a 16.0 percent annualized rate in Q3. This is clearly not sustainable, especially in light of the ongoing constraints enforced by the federal spending sequester, and strongly suggests that we will see a major pullback in federal defense spending over the next quarter or two. Real inventories settled to a normalish $62.8 billion ($2009) in Q3, dragging on growth as expected. Real consumer spending (accounting for about two-thirds of GDP) increased at an uninspired 1.8 percent annualized rate. We had forecast 1.9 percent. Net exports were also stronger than expected in Q3, supported by a surge in goods exports.

The Federal Open Market Committee took their opportunity to get out of the business of active QE, voting, as expected, Wednesday to end new purchases by today. They are still in the business of sustaining their balance sheet by reinvesting maturing assets, but we can call that passive QE. The FOMC statement contained a marginally better interpretation of labor market conditions. Fed officials looked through the price drag from lower energy prices, saying that the likelihood of inflation running persistently below 2 percent has diminished. The next step in the Fed’s pivot away from extraordinary monetary policy will be interest rate lift-off. The FOMC retained the “considerable time” forward guidance on interest rate lift-off. We still think that June is a good guess for the timing of lift-off.

Initial claims for unemployment insurance ticked up inconsequentially, by 3,000, to hit a still ultra-low 287,000 for the week ending October 25. Continuing claims increased by 29,000 for the week ending October 18, to reach 2,384,000, also still a very good number.

New orders for durable goods declined by 1.3 percent in September. This number looks like it is still impacted by the gyration in orders through July and August that came as a result of record commercial aircraft orders.

House prices are firming again. According to the Case-Shiller U.S. House Price Index for August, prices are up 0.4 percent for the month, following a 0.1 percent gain in July. This breaks a three-month slide in national average house prices.

Real disposable personal income was unchanged in September, held in check by soft gains in wages and salaries. Real consumer spending declined by 0.2 percent.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 10-31-14.

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