September 27, 2013

The third quarter is closing with more of a fizzle than a bang. Economic data look solid in some areas and soft in others. Income and spending data for July and August imply downside risk for our forecast of 2.1 percent real GDP growth for the soon-to-be completed third quarter. Total personal income increased by 0.4 percent in August, the strongest gain since February. Real disposable income was up 0.3 percent. Real consumer spending increased by 0.2 percent. Real consumer spending growth for Q3 looks to be weak-to-moderate, in the vicinity of 1.5 percent on an annualized basis. Despite strong car sales, real consumer spending for Q3 will be held down by weak growth in spending on services, some of which was weather-related in July. The third estimate of real GDP growth for the second quarter was unchanged at a 2.5 percent annualized rate. The U.S. economy had more momentum in Q2 than originally expected, helping to buffer the drag from fiscal tightening and weak global demand. New orders for durable goods increased slightly, by 0.1 percent in August. This followed a big 8.1 percent decline in July. July orders were soured by weakness in computers and communications equipment, and by a downdraft in commercial aircraft orders. The stability visible in August is welcomed news, but it is less than a
SURVEY Fed Funds Rate (Effective) (after the FOMC meeting of 10/29-10/30)

normal bounce-back from a weak July. On a year-ago basis, new orders for August were up 9.9 percent, so that is looking reasonably strong. However, just looking at the raw data we do see some flattening out of new orders in 2012 and 2013. Sometimes that flattening out is a precursor to a pullback. Other times it can give way to a reacceleration. Improving prospects for rest-of-world demand next year, less drag from fiscal tightening, and a more solid household sector all augurs for a reacceleration of capital spending. However, a dysfunctional federal budget process may keep consumer and business confidence in check. New home sales rebounded by 7.9 percent in August, after falling by 14.1 percent in July. The July dip may turn out to be an outlier but it also serves as a warning that new home sales are more vulnerable to the headwinds from rising mortgage rates than existing home sales. The months supply of new homes tightened up in August to 5.0 months worth at the current sales pace. Initial claims for unemployment insurance decreased by 5,000 to hit 305,000 for the week ending September 21. Technical issues in processing claims in California, which have contributed to lower claims in recent weeks, have been resolved according to the Department of Labor. Claims in the neighborhood of 300,000 are consistent with steadily improving labor market conditions.
COMERICA ECONOMICS COMMENTARY

Last Actual

0.08% (Aug)

The fed funds rate will remain parked near zero through 2014, unless FOMC policy changes. Conflicting communications by committee members have failed to firm up taper timing. There are two FOMC meetings left this year, Oct.29-30 and Dec. 17-18. A late October taper looks more likely than December. However, nothing is certain at this point. Down to a 15.9 million unit rate. A little give back after strong August sales reflecting confidence draining budget battles in Washington. Down to 55.0. Still comfortably above the break-even 50 mark. Up by 0.3 percent. Residential is in a holding pattern. Stimulus-funded government projects are winding down. Private commercial is stirring but still sleepy.

September Auto Sales (10/1, Tuesday) Consensus: 16.0 mln September ISM MF Index (10/1, Tuesday) Consensus: 55.2 August Construction Spending (10/1, Tuesday) Consensus: 0.4 percent

16.1 mln (Aug) 55.7 (Aug) 0.6% (Jul)

To subscribe to our publications or for questions, contact us at ComericaEcon@comerica.com. Archives are available at http://www.comerica.com/economics. Follow us on Twitter:@Comerica_Econ.
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.

SURVEY September ISM Non-MF Index (10/3, Thursday) Consensus: 57.0 September Nonfarm Payrolls (10/4, Friday) Consensus: +178 k September Manufacturing Payrolls (10/4, Friday) Consensus: +5 k September Unemployment Rate (10/4, Friday) Consensus: 7.3 percent

Last Actual

COMERICA ECONOMICS COMMENTARY

58.6 (Aug) +169 k (Aug) +14 k (Aug) 7.3% (Aug)

Down to 56.5. Retail spending may be dampened by the political debate. Up by 175,000. Unemployment insurance claims look good at 305,000. There could be an upside surprise. Up by 8,000. Auto makers are increasing production. We see more evidence of good fundamentals for U.S. manufacturing. Unchanged at 7.3 percent. Even with decent job growth we could see a bounce back in the labor force that freezes the unemployment rate.

Chart of the Week

A Labor Force Bounce in September Would Mean No Improvement in the Unemployment Rate

600 400 200

0

(200)
(400)

(600) J '13 F M A M J J A Civilian labor force: Total, (Ths. SA) for United States

Subscribe to Comerica 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.

September/ October 2013

MONDAY
23

TUESDAY
24 CASE-SHILLER HPI COMP-20 (SA) Apr Jun Jul 156.8 158.2 159.2

WEDNESDAY
25 NEW HOME SALES (ths-SAAR) Jun Jul Aug 454 390 421

THURSDAY
26 UNEMPLOYMENT CLAIMS (ths) Jun 346 336 355 348 344 Jul 358 336 345 328 Aug 335 322 337 333 323 Sep 294 310 305

FRIDAY
27 INCOME and SPENDING Income Spending Jun Jul Aug 0.3% 0.2% 0.4% 0.6% 0.2% 0.3%

ADV DURABLE GOODS Total Ex-Transp Jun Jul Aug 3.9% -8.1% 0.1% 0.1% -0.5% -0.1%

GROSS DOMESTIC PRODUCT Real GDP Price Index 12Q4 0.1% 1.4% 13Q1 1.1% 2.5% 1.7% 0.6% U of M Consumer Sentiment (Final) 3 ISM NON-MFG INDEX Jun Jul Aug 52.2 56.0 58.6 EMPLOYMENT REPORT U. Rate Jobs (ths) Jun Jul Aug 7.6% 7.4% 7.3% +172 +104 +169 4 13Q2

Richmond Fed Survey Consumer Confidence 30 October 1 AUTO SALES (mln-SAAR) Jun Jul Aug 15.9 15.8 16.1 2

Pending Home Sales

CONSTRUCTION SPENDING May Jun Jul 2.0% 0.0% 0.6%

ISM MFG INDEX Jun 50.9 Jul Chicago PMI Texas Mfg Index 7 TRADE BALANCE (bln) May Jun Jul -$43.7 -$34.5 -$39.1 Aug 55.4 55.7 8 9 10 PRODUCER PRICE INDEX Total Core Jun Jul Aug 0.8% 0.0% 0.3% 0.2% 0.1% 0.0% 11

Jun Jul Aug

RETAIL SALES Total Ex-Autos 0.6% 0.1% 0.4% 0.2% 0.6% 0.1%

Consumer Debt 14

NFIB JOLTS 15

FOMC Minutes 16 CONSUMER PRICE INDEX Total Core Jun Jul Aug 0.5% 0.2% 0.1% 0.2% 0.2% 0.1% Jun Jul Aug HOUSING (ths.) Starts Permits 835 883 891 918 954 918 CAP UTIL 77.8% 77.6% 77.8% 17

Inventories U of M Consumer Sentiment (Prelim) 18 LEADING INDICATORS Jun Jul Aug 0.0% 0.5% 0.7%

IND PROD Jun Jul Aug Empire State Survey Beige Book 0.1% 0.0% 0.4%

Philly Fed Survey