U.S. economic data from year-end 2014 continues to impress, setting the stage for solid momentum in 2015. U.S. job creation remains strong in December as 252,000 payroll jobs were added on a net basis. Moreover, the already strong October and November numbers were revised up. Strong job growth combined with weaker labor force growth is bringing the U.S. unemployment rate down quickly, from 5.8 percent in November to 5.6 percent in December. A tighter unemployment rate adds to the potential for wage inflation later this year. In November, average hourly earning dropped slightly.
Unemployment insurance claims are consistent with the jobs report. Initial claims for unemployment insurance decreased by 4,000 for the week ending January 4, to hit 294,000. Continuing claims for the week ending December 27 increased stronger than expected, by 101,000 to hit 2,452,000, but the trend is still good.
The ISM Non-Manufacturing Index for December fell moderately, from a strong 59.3 in November to a still-positive 56.2. Anecdotal comments were generally positive, including glowing words from auto dealers.
U.S. light vehicle sales for December eased slightly, from an impressive 17.2 million unit annual pace in November, to a still solid 16.9 million unit rate. The fourth quarter average sales rate finished slightly above the third quarter average, implying a positive fourth quarter for consumer spending on durable goods, an important component of GDP.
Fourth quarter GDP also got a shot in the arm from the November U.S. international trade data. The trade gap narrowed more than expected for the month, to $39.0 billion dollars. Imports decreased by $5.2 billion, while exports eased by $2.1 billion. After adjusting for price changes, the real balance of trade in goods dipped in November. So far, the real balance of trade for October and November is very close to the third quarter average, suggesting that there will be little to no drag from trade in Q4 GDP.
The Baker Hughes U.S. rotary drilling rig count, an important indicator of oil field activity, is dropping off its September peak. The total count for the first week of January has dropped from 1,931 in late September to 1,811. With oil prices still sliding, WTI crude oil is now below $50 per barrel, we expect the rig count to drop significantly through 2015 and employment in the resources and mining sector to begin to decline very soon.
Consumer credit increased by $14 billion in November, driven by gains in nonrevolving credit. Revolving credit actually declined slightly perhaps helped by lower gasoline prices.
The solid December labor market data keeps the Federal Reserve on track for interest lift-off between April and December of this year. We continue to place our best guess for lift-off on the June 16/17 FOMC meeting.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 01-09-15 .