Download It`s a Spring Thaw for the U.S. Economy

Economic Outlook: C+
Balance of Risk:
It’s a Spring Thaw for the U.S. Economy
Recent data for the U.S. economy show a spring thaw in progress after one of the worst winters on record for
parts of the upper Midwest. Consumer spending is picking up, companies are producing more and hiring more
workers and houses are being built. Credit is flowing and confidence indexes are improving. We still expect to see
a very weak 2014Q1 GDP report at the end of this month. Not only was the bad weather a drag through Q1, but
federal discretionary spending was still contracting and we expect to see a renormalization in inventories after last
fall’s surge in both farm and nonfarm inventories. If Q1 comes in as weak as we expect, there is a danger that improving confidence will be throttled back, dragging on Q2 economic activity. Hopefully, consumers and businesses
will respond to the clearing skies and calming seas in front of them, rather than to the stormy passage behind
them. With more confirmation of improving fundamentals, we expect to upgrade our Economic Outlook rating
soon. We have not yet been above a C+ rating in its brief history, since September 2011.
In a benign economic environment the Federal Reserve will try to unwind extraordinary policy steadily and predictably, but without explicit forward guidance to box them in. We expect the Yellen Fed to be a little more boring
than the Bernanke Fed simply because the times are different. Bernanke’s job was to surprise a very bad economy
in a good direction. Yellen’s goal will be to avoid bad surprises in an improving economy. At their upcoming April
29/30 meeting, we expect the FOMC to announce another $10 billion reduction in its asset purchase program. We
continue to expect to see the first increase in the near-zero fed funds rate around mid-year 2015, as early as the
end of April, as late as mid-September.
Job growth got back on track in February and March after a weak December and January. In February 197,000
jobs were added. March saw 192,000 net new payroll jobs. Recently stronger labor force growth may be a developing trend. If it is, that could bring the unemployment rate down more slowly than previously thought. We have
increased our estimate of labor force growth this year in our April forecast. Consequently, the unemployment rate
declines more slowly for the remainder of this year than previously estimated. That does not imply a net worsening of the outlook. The unemployment rate is simply not a well-calibrated measure of economic activity. Vehicle
sales stepped up in March to a 16.4 million unit rate. The bounce-back in sales was likely propelled by demand
pent up over the winter. Light truck sales in particular were stronger than expected, which is a positive indicator
for construction. We look for slightly weaker vehicle sales in April consistent with an overall improving trend.
U.S. Economic Outlook, Summary
Output & Prices
Real GDP (Chained 2009 Billions $)
Percent Change Annualized
CPI (1982-84=100)
Percent Change Annualized
Labor Markets
Payroll Jobs (Millions)
Percent Change Annualized
Unemployment Rate (Percent)
Interest Rates (percent per year)
Federal Funds Rate (Effective)
10-Yr. Treasury Rate
a = actual
f = forecast
3Q'13a
4Q'13a
1Q'14f
2Q'14f
3Q'14f
4Q'14f
1Q'15f
2Q'15f
2013a
2014f
2015f
15839
4.1
233.5
2.2
15942
2.6
234.1
1.1
15960
0.5
235.1
1.7
16076
2.9
236.1
1.8
16215
3.5
237.2
1.8
16349
3.3
238.3
1.8
16485
3.4
239.4
1.9
16615
3.2
240.5
1.9
15761
1.9
233.0
1.5
16150
2.5
236.7
1.6
16678
3.3
241.1
1.9
136.6
1.6
7.2
137.2
1.8
7.0
137.7
1.4
6.7
138.3
1.6
6.6
138.9
1.6
6.5
139.4
1.7
6.4
140.0
1.6
6.3
140.5
1.6
6.2
136.4
1.7
7.4
138.6
1.6
6.6
140.8
1.6
6.2
0.08
2.71
0.09
2.75
0.07
2.76
0.09
2.70
0.12
2.82
0.15
3.00
0.15
3.15
0.15
3.30
0.11
2.35
0.11
2.82
0.32
3.43
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The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained
herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction
based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the
authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or
factual information.
March Payrolls Increased by 192,000 Jobs
1000.00
GDP Growth in 2013Q4 Revised Up to 2.6%
9.5
Unemployment Rate, Percent (R)
6
Real GDP, Percent Change Annualized
800.00
9.0
600.00
4
2
400.00
8.5
0
200.00
8.0
-2
0.00
-200.00
7.5
-4
-6
-400.00
7.0
-8
-600.00
Total Nonfarm Employment
-800.00
J'11
J'12
Total Employed (Household Survey)
J'13
6.5
J'14
-10
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
Figure 1
Existing Home Sales Per Household
Housing Markets: Normal, Renormalizing and Above Normal
0.060
Housing markets are a strong indicator of consumer be0.055
havior and the health of the overall economy. At the beginning
0.050
of year 5 of the U.S. economic recovery, some housing market
0.045
metrics appear to be renormalizing while others appear to still
0.040
have upside growth potential.
0.035
0.030
Existing home sales per household are close to normal.
0.025
Historically low mortgage interest rates and favorable pricing
Long-Run Average
0.020
supported housing affordability and have been a boost for traditional home sales. High affordability plus a strong renters’ market made existing homes attractive to institutional buyers and Figure 2
New Home Sales Per Household
0.012
investors. A limited supply of new homes in some housing markets also pushed traditional buyers to existing homes. Figure 1
0.010
shows that existing home sales per household are now near
0.008
their long-run average. With approximately 117 million households in the U.S., a 4,578,000 annual unit rate would be consid0.006
ered normal for existing home sales. This is only 108,000 units
0.004
above the total existing home sales of 4,470,000 for 2013 .
Long-Run Average
New homes sales, which make up a relatively smaller
0.002
portion of U.S. home sales, show much more upside potential
for growth. New home sales accounted for about 9 percent of
single-family home sales in 2013. The recovery in new homes sales has been tepid compared to the existing home market,
with sales increasing by 17 percent in 2013, for a total of only 431,000 sales last year. Figure 2 shows that new home sales
per household remain well below their long-run average. A 910,000 unit annual rate would be considered normal for new
home sales. We last increased to that sales rate in 2001.
House price appreciation is currently above normal and expected to moderate going forward. According to the
Case-Shiller 20-City Composite Index, year-over-year house price growth peaked at 13.7 percent in the 12 months ending in
November 2013. Since then, house price growth has begun to slow and is expected to moderate in most markets. We expect solid income growth, pent up demand and tight supply to continue to support house price appreciation, but doubledigit price gains are not sustainable over the long run. From 2001 until 2013, the Case-Shiller 20-City Composite index increased an average of 3.6 percent per year, slightly below the average for personal income growth of 3.9 percent.
Subscribe to economics publications at: http://www.comerica.com/econsubscribe. Archives available at http://www.comerica.com/economics.
The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained
herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction
based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the
authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or
factual information.
Net Exports and Consumer Spending
Supported Q4 GDP Growth
Non-Res. Fixed
Investment
Industrial Production Improved in February
2.0
2013Q1
Contribution to GDP
80
79
Capacity Utilization, Percent (R)
1.5
78
2013Q2
Res. Fixed
Investment
2013Q3
77
1.0
2013Q4
Inventories
76
0.5
75
Net Exports
74
Government
0.0
Consumer
Spending
-0.5
73
72
71
Industrial Production, Percent Change (L)
-1.0
-2
-1
0
1
2
70
J'10
3
J'11
Income and Spending Picked Up in February
J'12
J'13
J'14
Auto Sales Accelerated in March
4
18
3
Auto and light truck sales, SAAR, mil.
17
Percent Change
2
16
1
15
0
14
-1
13
-2
12
-3
11
-4
10
9
-5
J'11
J'12
J'13
J'14
8
J'10
Income
J'11
J'12
J'13
J'14
Spending
Canadian Dollar is Weakening
Inflation Slowed in February
1.15
14.0
8
Percent Change Year Ago
1.10
7
Canadian Dollar per USD (L)
1.05
13.5
PPI
6
1.00
0.95
13.0
Mexican Peso per USD (R)
5
4
0.90
0.85
12.5
CPI
3
0.80
2
0.75
12.0
Euro per USD (L)
0.70
1
Core CPI
0.65
11.5
J'10
J'11
J'12
J'13
0
J'10
J'14
J'11
J'12
J'13
J'14
House Construction Still Has Room to Grow
Existing Home Sales Flat in February
5,500
175
170
5,100
1100.00
1000.00
165
160
4,700
155
SAAR, Thousands
900.00
800.00
150
4,300
145
140
3,900
135
700.00
600.00
500.00
130
3,500
125
J'11
J'12
Existing Home Sales, Ths. SAAR (L)
J'13
Case Shiller Comp - 20 HPI (R)
J'14
400.00
J'10
J'11
Housing Completions
J'12
Housing Permits
J'13
J'14
Housing Starts
Subscribe to economics publications at: http://www.comerica.com/econsubscribe. Archives available at http://www.comerica.com/economics.
The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained
herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction
based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the
authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or
factual information.
3Q'13a
4Q'13a
1Q'14f
2Q'14f
3Q'14f
4Q'14f
1Q'15f
2Q'15f
2013a
2014f
2015f
16913
6.2
15839
4.1
10744
2.0
1995
4.8
499
10.3
116
-420
2907
0.4
99.6
2.5
78.0
17090
4.2
15942
2.6
10832
3.3
2023
5.7
489
-7.9
112
-383
2869
-5.2
100.9
5.5
78.7
17184
2.2
15960
0.5
10867
1.3
2045
4.5
494
4.2
72
-387
2867
-0.2
101.6
2.5
78.8
17380
4.6
16076
2.9
10937
2.6
2081
7.3
502
6.6
63
-381
2872
0.6
102.5
3.9
79.1
17607
5.3
16215
3.5
11006
2.5
2124
8.5
513
9.2
63
-380
2887
2.2
103.5
3.7
79.2
17832
5.2
16349
3.3
11068
2.3
2170
9.0
525
9.3
63
-384
2905
2.4
104.4
3.5
79.4
18062
5.3
16485
3.4
11129
2.2
2214
8.3
535
8.3
63
-381
2922
2.4
105.2
3.3
79.6
18289
5.1
16615
3.2
11191
2.2
2254
7.4
544
6.7
62
-382
2943
2.8
106.0
3.1
79.7
16800
3.4
15761
1.9
10728
2.0
1984
2.7
487
12.2
82
-412
2897
-2.2
99.5
2.6
78.1
17501
4.2
16150
2.5
10969
2.2
2105
6.1
508
4.5
65
-383
2883
-0.5
103.0
3.5
79.1
18402
5.1
16678
3.3
11222
2.3
2273
8.0
548
7.8
62
-382
2952
2.4
106.4
3.4
79.8
233.5
2.2
107.4
1.9
106.7
2.0
196.9
2.3
105.9
234.1
1.1
107.7
1.1
107.1
1.6
197.3
0.7
97.5
235.1
1.7
108.1
1.6
107.6
1.8
199.4
4.2
98.6
236.1
1.8
108.6
1.9
108.0
1.7
200.6
2.5
100.0
237.2
1.8
109.1
1.9
108.5
1.8
201.6
2.0
100.0
238.3
1.8
109.6
1.8
109.0
1.9
202.5
1.9
100.0
239.4
1.9
110.1
1.8
109.5
1.9
203.5
1.9
100.0
240.5
1.9
110.6
1.8
110.1
1.9
204.5
1.9
100.0
233.0
1.5
107.2
1.1
106.5
1.4
196.6
1.2
97.9
236.7
1.6
108.9
1.5
108.3
1.7
201.0
2.3
99.7
241.1
1.9
110.9
1.9
110.3
1.9
205.0
2.0
100.0
136.6
1.6
7.2
33.6
316.7
0.8
137.2
1.8
7.0
33.6
317.3
0.8
137.7
1.4
6.7
33.6
318.0
0.8
138.3
1.6
6.6
33.6
318.6
0.8
138.9
1.6
6.5
33.7
319.2
0.8
139.4
1.7
6.4
33.7
319.8
0.8
140.0
1.6
6.3
33.7
320.4
0.8
140.5
1.6
6.2
33.8
321.0
0.8
136.4
1.7
7.4
33.7
316.4
0.7
138.6
1.6
6.6
33.6
318.9
0.8
140.8
1.6
6.2
33.8
321.4
0.8
20.18
2.1
11703
3.0
4.9
20.30
2.5
11725
0.8
4.3
20.45
3.0
11778
1.8
4.2
20.60
3.0
11863
2.9
4.2
20.76
3.1
11957
3.2
4.2
20.92
3.1
12053
3.2
4.2
21.08
3.2
12153
3.4
4.2
21.26
3.3
12255
3.4
4.2
20.14
2.0
11637
0.7
4.5
20.68
2.7
11913
2.4
4.2
21.34
3.2
12306
3.3
4.2
882
4697
388
147.6
11.2
1008
4343
447
151.5
11.4
922
4054
451
154.9
10.0
954
4188
461
158.0
9.7
973
4247
472
161.0
9.1
989
4314
480
163.8
8.1
1010
4371
488
166.4
7.4
1023
4423
495
168.8
6.8
929
4471
431
146.0
10.6
960
4201
466
159.5
9.2
1034
4450
499
170.0
6.6
-2.4
15.7
3057
14.9
-3.2
15.7
3099
13.9
-2.0
15.7
3113
4.9
-1.4
16.0
3150
12.3
-0.9
16.3
3183
11.0
0.0
16.4
3213
9.8
0.7
16.5
3244
10.4
1.2
16.6
3273
9.9
-1.8
15.6
3034
6.1
-1.1
16.1
3165
4.3
1.5
16.7
3289
3.9
0.08
3.25
0.19
0.26
0.12
1.51
2.71
4.09
0.09
3.25
0.17
0.24
0.12
1.44
2.75
3.95
0.07
3.25
0.16
0.24
0.12
1.60
2.76
3.98
0.09
3.25
0.15
0.23
0.11
1.67
2.70
4.09
0.12
3.25
0.17
0.26
0.14
1.72
2.82
4.17
0.15
3.25
0.22
0.32
0.18
1.79
3.00
4.33
0.15
3.25
0.22
0.34
0.20
1.82
3.15
4.47
0.15
3.25
0.23
0.34
0.21
1.85
3.30
4.61
0.11
3.25
0.19
0.27
0.13
1.17
2.35
3.61
April
0.11
3.25
0.17
0.26
0.14
1.69
2.82
4.14
9, 2014
0.32
3.38
0.40
0.52
0.38
1.98
3.43
4.75
Output
Nominal GDP (Billions $)
Percent Change Annualized
Real GDP (Chained 2009 Billions $)
Percent Change Annualized
Pers. Consumption Expenditures
Percent Change Annualized
Nonresidential Fixed Investment
Percent Change Annualized
Residential Investment
Percent Change Annualized
Change in Private Inventories
Net Exports
Government Expenditures
Percent Change Annualized
Industrial Prod. Index (2007=100)
Percent Change Annualized
Capacity Utilization (Percent)
Prices
CPI (1982-84=100)
Percent Change Annualized
PCE Price Index (2009=100)
Percent Change Annualized
GDP Price Index (2009=100)
Percent Change Annualized
Producer Price Index, Finished Goods
Percent Change Annualized
Crude Oil, WTI ($/barrel)
Labor Markets
Payroll Jobs (Millions)
Percent Change Annualized
Unemployment Rate (Percent)
Average Weekly Hours, Prod. Works.
Population (Millions)
Percent Change Annualized
Personal Income
Average Hourly Earnings ($)
Percent Change Annualized
Real Disp. Income (2009 Billions $)
Percent Change Annualized
Personal Saving Rate (Percent)
Housing
Housing Starts (Ths., Ann. Rate)
Ext. SF Home Sales (Ths., Ann Rate)
New SF Home Sales (Ths., Ann Rate)
Case/Shiller HPI (Jan. 2000=100)
Year/Year Percent Change
Consumer
Household Economic Stress Index
Auto Sales (Millions)
Consumer Credit (Billions $)
Percent Change Annualized
Interest Rates (percent per year)
Federal Funds Rate (Effective)
Prime Rate
1-Month LIBOR
3-Month LIBOR
1-Yr. Treasury Rate
5-Yr. Treasury Rate
10-Yr. Treasury Rate
30-Year Fixed Rate Mortgage
a = actual
f = forecast
Subscribe to economics publications at: http://www.comerica.com/econsubscribe. Archives available at http://www.comerica.com/economics.
The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained
herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction
based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the
authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or
factual information.