Comerica Bank’s Florida Index Maintains Strong Gains

Comerica Bank’s Florida Economic Activity Index improved in December, growing 1.5 percentage points to a level of 124.7. November’s index reading is 47 points, or 60 percent, above the index cyclical low of 78.0. The index averaged 117.9 in 2014, eight and eight-tenths points above the average for all of 2013. November’s index reading was 123.2.

“The Florida economy is showing solid, consistent growth as evidenced by the nine consecutive monthly gains in our Florida Economic Activity Index. All eight components of our Florida Index increased in December. This is the first time that we have seen across-the-board gains in all index components since May of 2014, demonstrating that Florida has reclaimed its place as a U.S. growth leader,” said Robert Dye, Chief Economist at Comerica Bank. “We expect housing markets to continue to improve through 2015 with ongoing gains in construction activity and firming prices. An improving U.S. economy and low gasoline prices are tailwinds for the Florida economy. However, the strong U.S. dollar will mitigate some of the gain expected from an improving global economy in 2015.”


For a PDF version of the Florida Economic Activity Index click here: FloridaIndex_0215.

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Comerica Bank’s Arizona Index Shows Strong Gain

Comerica Bank’s Arizona Economic Activity Index grew in December, increasing 1.7 percentage points to a level of 104.0. December’s index reading is 27 points, or 36 percent, above the index cyclical low of 76.7. The index averaged 99.9 points for all of 2014, four and one-half points above the average for full-year 2013. November’s index reading was 102.3.

“Our Arizona Economic Activity Index increased again in December, for the seventh consecutive month. Moreover, the last two monthly increases in our Arizona Index have been very broad-based, with all eight components of the index improving. Job creation in Arizona remains about on par with the overall U.S. economy, which is unusually subdued at this point in the business cycle. The residential real estate market in Arizona, which historically has been a driver of above-average job growth for the state, has improved only slowly,” said Robert Dye, Chief Economist at Comerica Bank. “According to the latest Case-Shiller House Price Index, Phoenix house prices were up only 2.4 percent for the year ending in December. We expect to see stronger house price growth for Arizona in 2015.”


For a PDF version of the Arizona Economic Activity Index click here: ArizonaIndex_0215.

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Comerica Economic Weekly

The short week produced mixed U.S. data. Signs continue to point to a weak, but positive, GDP reading for the first quarter of 2015. Even though the GDP data is seasonally adjusted, we have had a spate of weak Q1 reports coming off the Great Recession, including 2010Q1, 2011Q1, 2014Q1, and now 2015Q1. Sometimes patterns just happen, particularly when the underlying components of a series are complex.

Home construction remains range-bound near the 1 million units per year mark. Housing starts fell by 0.2 percent in January to a 1,065,000 unit annual rate, essentially where they have been through the second half of 2014. We can blame the weather a little bit. The National Association of Homebuilders’ Builder Confidence Survey fell 2 points in February, attributed to snow cover. Aside from the weather, new home sales were stuck near a 450,000 unit pace over the last two years, holding builders in check. Building permits eased slightly by 0.7 percent in January, to a 1,053,000 million unit pace.

The Producer Price Index for Final Demand fell by 0.8 percent in January, well beyond consensus expectations. Final demand goods prices were down by 2.1 percent. The energy index slid by 10.3 percent, the largest one-month drop since oil prices started falling last July. Food prices eased 1.1 percent with lower dairy product prices. Final demand services prices were lower by 0.2 percent with lower costs for outpatient care. Over the previous 12 months the PPI for final demand is unchanged.

The Industrial Production Index for January was up by 0.2 percent. Manufacturing output matched that gain, increasing by 0.2 percent. Motor vehicle assemblies eased by 1.4 percent to an 11.76 million unit rate, reflecting the step down in auto sales from November through January. Utility output rebounded off a December dip, gaining 2.3 percent in January.

The Conference Board’s Leading Economic Index for January gained just 0.2 percent, the weakest gain since last August. The coincident and lagging indexes were also up, indicating broad momentum in the U.S. economy.

Initial claims for unemployment insurance for the week ending February 14 decreased by 21,000 to hit 283,000. Continuing claims increased by 58,000, to 2,425,000 for the week ending February 7.

The minutes of the Federal Open Market Committee meeting of January 27-28 show a Fed deeply engaged in the process of figuring out the mechanics of interest rate lift off. We may see a further refinement of the Fed’s forward guidance on interest rates after either the March or April FOMC meetings. We expect the Fed to modify forward guidance this Spring in order to signal their intentions to lift the fed funds rate later this year. The June FOMC meeting still feels like a reasonable guess for the timing of interest rate lift-off.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 02-20-15.

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Strong Auto Industry Bolsters Detroit

Lower gasoline prices, strong job creation and improving consumer confidence are a potent combination for U.S. auto sales, and that is good news for Detroit. U.S. auto sales look like they are getting close to the top of the cycle, edging down to a 16.6 million unit rate in January. We forecast sales for 2015 to total 17.0 million units, slightly better than the top-of-the-cycle 16.9 million units sold in 2005. Auto production in Michigan will get a boost from the Bolt, General Motor’s new electric vehicle. GM will invest $200 million at its Orion Assembly plant and at its Pontiac Metal Center to support the Bolt. As GM hopes to get a bang from their Bolt, auto industry jobs will get a boost. According to the Anderson Economic Group, Southeast Michigan ranks first nationally in the number of advanced automotive industry jobs. However, the Motor City is getting more competition from Silicon Valley for leadership in transportation innovation. Apple is developing an electric vehicle and Google is pushing self-driving technology.

Much ink has been spilt about relatively weak wage growth in the aftermath of the Great Recession. As we progress through 2015, we expect to see more evidence of tightening labor markets and increasing wages. Wal-Mart has just announced a $1 billion pay and training package for its U.S. hourly workers. This will help to raise for the floor for minimum wage workers nationally. Unions are starting to reassert themselves as the U.S. economy improves. Dockworkers in California are making their presence felt. The United Auto Workers’ four-year contract expires this September 15.

The Southeast Michigan Purchasing Managers Index for January took a big step down to 50.0 indicating neither expansion nor contraction in area manufacturing. Some of the drop was due to lower commodity prices, which may be reflective of lower oil and natural gas prices and not indicative of increasing slack.

DetroitRegional_02_20_2015Click here for the complete Detroit Regional Economic Update: Detroit2014_Q4.

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Central West Michigan Gains Strength

The significant decline in gasoline prices and gains in house price have boosted consumer confidence all over the nation, especially in Central West Michigan, where the economy is tightly connected with auto industry. Sales of SUVs and light trucks have accelerated in the past few months as fuel prices dropped, helping manufacturing industries in Central West Michigan. According to the Bureau of Economic Analysis, growth in manufacturing in the third quarter exceeded growth in any other major economic sector in Michigan. Demand for office furniture is expected to stay strong throughout 2015, pushing furniture production to its highest since 2008. Increased furniture production, basically from middle-market furniture producers, along with strong job growth, lower gasoline prices and increased consumer confidence are expected to help strengthen the Michigan economy.

Moderately strong job growth has brought the CWM unemployment rate to 4.9 percent in the fourth quarter of 2014. We expect the regional unemployment rate to continue to trend lower through 2015 and 2016, putting upward pressure on wage rates, especially for skilled positions.

Housing markets in the Grand Rapids area remain tight. Both rental rates and purchase prices are increasing. However, house construction has remained modest. Limited in-migration is contributing to below-average population growth, constraining demand for housing. In February, Trulia listed an average price per square foot of home as $134, an increase of 6.3 percent from that same period last year. Current low inventories and harsh weather has constrained the housing market over the winter. Ongoing economic growth along with strengthening credit quality will support housing markets in 2015 and further in 2016. We expect homeowners to increase their wealth as prices rise in a low interest rate environment.


Click here for the complete Central West Michigan Regional Economic Update: CentralWestMI2014_Q4.

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Phoenix Economy Shows Gradual, Sustainable Improvement

The Phoenix metro area ended 2014 with a 2.7 percent increase in total nonfarm employment. Growth occurred in most employment sectors, with particularly pronounced December-over-December changes in professional and business services and education and health services. These two industries alone accounted for over three-fifths of the total job growth for Phoenix in 2014. The region’s large construction sector continued its downward trend, with jobs numbers ending the year down by 3.6 percent. However, the anticipated stronger growth in high-paying sectors will help to reverse the trend of the city’s construction sector as millennials and boomerang buyers enter into the housing market.

Housing starts and prices have yet to regain their pre-recession levels. Conditions, however, are improving by many measures. Distressed sales composed almost 40 percent less of total units sold year-over-year for December. The number of days homes spent on the market increased in 2014, however inventory growth slowed. The area is moving towards a more normalized market, with institutional buyers slowing and traditional buyers finding their footing as the U.S. economy firms up. The region is still popular among second-home buyers and retirees, who will benefit from improving economic conditions over 2015. The continued decline of distressed property sales and foreclosures will help to stoke home prices in the upcoming years.

Reports on the net benefit of the Super Bowl have been mixed. However, even if the initial estimates were overblown, Phoenix still experienced a bump in consumer spending thanks to fans in town for the game. Phoenix will continue its moderate growth for 2015, but real estate prices and construction, key drivers to the area economy, will not be approaching pre-recession levels. Although Phoenix isn’t rebounding strongly, its sustainable growth and low cost of living will help to attract more business to the “Silicon Desert.”


 Click here for the complete Phoenix Regional Economic Update: Phoenix2014_Q4.

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Southern California and Port Negotiations

Increased congestion at the Ports of Los Angeles and Long Beach is disrupting normal supply chains. Companies importing goods have to make the decision between suspending manufacturing operations, diverting shipments to Gulf and East coast ports, or using more expensive airfreighting. Exporters are also feeling the pinch as delays prevent goods being sent to international markets. Businesses that deal with perishables are faced with product losses and cancelled orders. The Obama administration sent Labor Secretary Tom Perez to the Bay Area to help negotiate a deal between the Pacific Maritime Association and the International Longshore and Warehouse Union after vessel operations were suspended for all West Coast ports from February 14-16. Further deterioration in negotiations remains a major downside risk to area port activity this year.

Southern California homeowners are seeing some light at the end of the tunnel in terms of recovered home equity. Area home prices are expected to grow by another 6.3 percent in 2015. The gain in equity as well as sustained income growth may encourage more homeowners to put their homes on the market over the next two years. This will boost the supply of homes for the tight Southern California housing market.

The region’s labor markets continue to improve heading into 2015. Southern California added 171,000 nonfarm payrolls in the 12 months ending in December 2014. Though job gains were positive news, Southern California’s unemployment rate remained stubbornly high at 7.0 percent compared to the U.S. at 5.6 percent. We expect labor force participation to increase at a faster rate this year leading to a slower decline in the area’s unemployment rate. The slack in Southern California’s labor markets will keep area income growth at around 4.8 percent for 2015. This remains below the region’s average annual income growth of 5.6 percent between 1996 and 2006, and indicates that the region is still renormalizing to a pre-recession economy.


Click here for the complete Southern California Regional Economic Update: SouthernCA2014_Q4.

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Northern California Faces Trade and Housing Headwinds

Northern California labor markets are heading into 2015 with strong momentum. The region added another 104,000 nonfarm payrolls in the 12 months ending in December 2014. The area’s labor force gained a net 85,000 participants last year, its highest annual gain since 2000. The area unemployment rate remained elevated compared to pre-recession lows at 5.0 percent, indicating that some slack in the labor market exists.

The modern urbanism movement is reducing housing affordability, putting a squeeze on middle income earners. Business professionals are pouring into major metro areas, increasing demand for housing. However, the change in housing stock is not keeping pace with the inflow of professionals into Northern California, leading to higher home prices. Trulia measured housing affordability using a total monthly cost for housing which did not exceed 31 percent of a metro area’s median income. The study noted that the San Francisco and San Jose metro areas had some of the lowest housing affordabilities at 15 and 30 percent ,respectively, in November 2014. This is a long-term issue for the region as labor availability is dependent on affordable living.

The Port of Oakland is facing increased congestion due to labor contract negotiations between the Pacific Maritime Association and the International Longshore and Warehouse Union. Ongoing port congestion is impeding normal supply chains. Companies importing goods have to make the decision between suspending manufacturing operations, diverting shipments to Gulf and East coast ports, or using more expensive airfreighting. Businesses that deal with perishables are faced with product losses and cancelled orders. The Obama administration sent Labor Secretary Tom Perez to the Bay Area to help negotiate a deal after vessel operations were suspended for all West Coast ports from February 14-16. Further deterioration in negotiations remains a major downside risk to area port activity this year.


Click here for the complete Northern California Regional Economic Update: NorthernCA2014_Q4.


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San Antonio’s Economy To Cool as Energy Sector Consolidates

The San Antonio economy will feel the drag from a consolidating energy sector this year. Oil field activity is slowing down in the Eagle Ford basin due to the decline in oil and natural gas prices that began at mid-year 2014. According to Baker Hughes, the total rotary rig count in Texas was down to 654 for the first week of February 2015, compared to 822 from the same period in 2014. In the Eagle Ford basin alone, the rig count declined to 168 in the first week of February from 248 a year ago. We expect rig counts to decline further, reflecting very low oil and natural gas prices in early 2015. The decline in drilling activity will be felt as both a direct and an indirect drag on the San Antonio economy. Job losses will be felt directly through a reduction in well drilling and service activity. Indirect effects will extend through many sectors of the local economy, including consumer and housing-related industries.

Job growth in natural resources and mining (NRM) has already started slowing down in the San Antonio metro area after peaking in early 2013. In 2014, the region was able to add about 766 NRM jobs, just half of what was added in 2013 in the sector. Fortunately, the region ended 2014 with good job gains outside of NRM, bringing the December unemployment rate down to 4.3 percent. We expect job growth to cool significantly through the second half of 2015 and into 2016 as direct and indirect drags from a consolidating energy sector are felt.

As oil field activity winds down, weighing on job growth, housing markets will cool as well. Total housing starts increased by nearly 25 percent in San Antonio in 2014. We expect construction activity to remain strong in 2015, in response to favorable demographics. However, as we look into 2016 we expect construction to plateau as weaker job creation leads to a slowdown in in-migration. By the third quarter of 2014, house price appreciation in San Antonio was outpacing the national average, reflecting the tight local housing market. As demand growth eases, we expect San Antonio house prices to soften and underperform the national average. A quick resumption of oil field activity would cause us to revise our outlook.


 Click here for the complete San Antonio MSA Regional Economic Update: SanAntonio2014_Q4.

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North Texas Continues to Prosper, But Lower Oil Prices Will Weigh on Growth

The North Texas economy finished 2014 strongly, with December payroll jobs up 4.4 percent over the previous 12 months. The metro area unemployment rate was down to 4.6 percent in December and is expected to continue to fall through 2015. The ability of North Texas to attract companies from out of state remains a fundamental positive for the area. However, lower oil prices will weigh on the regional economy in 2015. A direct impact will be felt on employment in oil and gas production and well servicing industries along the eastern and western edges of the metro area. Local communities will also feel the indirect drag of lower oil prices as oil field activity eases. In Dallas and Fort Worth proper, lower oil prices will weigh on job and income growth, but are not expected to throw the urban centers into recession. A diverse regional economy, fortified by marquis industries will provide a buffer against a weaker energy sector.

Oil prices have recently stabilized in the low $50/barrel range. But it is premature to call for a bottom in the oil market. U.S. production is still increasing even as the drilling rig count plummets. We expect oil prices to firm moderately through the second half of 2015 as U.S. production begins to ease and global demand increases.

Commercial property markets in North Texas are supported by a broad range of industries, helping to cushion the blow from lower oil prices. Net leasing for North Texas in 2014 was approximately 5 million square feet, the strongest in 15 years. Downtown Dallas is perking up. In 2014, for the first time in more than 20 years, the Dallas downtown office market generated more leases than suburban markets. Still, downtown Dallas has not seen a new skyscraper since the late 1980s. That may change as plans progress on a 1.75-acre downtown tract purchased in 2013 by Ross Perot Jr. We expect North Texas to avoid a regional recession with the collapse in oil prices, continuing support for office space in Dallas in 2015.


Click here for the complete North Texas Regional Economic Update: NorthTexas2014_Q4.

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