A consistent clear positive signal for the U.S. economy is coming from job growth. Payrolls in January registered a stronger-than-expected 257,000 net new jobs. The already strong November and December jobs numbers were revised up to a robust 423,000 and 329,000 jobs, respectively. The unemployment rate ticked up inconsequentially to 5.7 percent in January. We still expect the U.S. unemployment rate to trend down through this year, dropping to near 5.0 percent by December. Driving the small gain in the unemployment rate was an inexplicable 1,051,000 person gain in the labor force for January, the biggest one-month increase since January 2000. This was an artifact of the statistical machinery involved in the jobs numbers rather than a true reading on the economy.
Global growth leaves plenty to be desired. Fortunately, some forward looking indicators are turning positive for the Euro Zone. The Markit PMI, a broad-based diffusion index, is trending higher, indicating improving conditions for most industrial sectors. Auto sales are improving. Germany, France and Spain all posted gains in auto sales in January. A weaker euro relative to the dollar will help euro-zone exporters. January trade data for China was disappointing. Exports were down 3.3 percent from a year ago. Imports dropped by nearly 20 percent for the year ending in January. Japan slumped into technical recession in 2014Q3, with two consecutive quarters of GDP contraction. The good news is that the Japan PMI increased in January, which may turn out to be an indication of a short and shallow slump. The combination of aggressive federal deficit reduction and equally aggressive quantitative easing hopefully sets the stage for a stronger Japan later in 2015. Significantly lower crude oil prices are a threat to Russia. The ruble is under pressure, straining Russia’s financial sector, inflation is soaring and Russia’s federal deficit is widening. The World Bank recently downgraded the outlook for Russian GDP growth in 2015 to –2.9 percent.
Oil prices have stabilized, at least temporarily. The near $8 gain in West Texas Intermediate, from $45/barrel in late January, to $53/barrel in early February, was the biggest upswing in oil prices since last July. The oil market is still a reflection of global oversupply combined with the desire of Saudi Arabia to preserve market share and drive out high-cost producers. The geo-political leverage that Saudi Arabia has through oil, relative to Syria, Russia and Iran makes for tremendous intrigue, and little predictability with respect to a long-term trend for oil prices. For now, we assume near-term stabilization and modest increases in crude oil prices through 2016. Ask us again tomorrow.
The Federal Reserve upgraded their assessment of the U.S. economy with the January 28th monetary policy announcement. We look for the Fed to modify their forward guidance on interest rates in either March or April, to set expectations for interest rate lift-off this summer, possibly at mid-June.
For a PDF version of the complete Comerica U.S. Monthly with additional commentary, tables, and charts, click here: USEconomicUpdate_02_09_2015.