Comerica Economic Weekly, June 11, 2021

Robert A. Dye, Ph.D.


Daniel Sanabria

Economic Chart

U.S. data this week was consistent with the "surging demand/constrained supply/strong inflation" story.

U.S. data this week was consistent with the "surging demand/constrained supply/strong inflation" story. Fiscal policy, monetary policy and the spend-out of pent-up demand are strong supports to the U.S. economy right now and that will continue through the remainder of this year. However, things will change on the margin. They always do, even as foundational forces endure.

On the margin, it looks like the Biden Administration will need to compromise more in terms of future spending initiatives as Senate rules become more restrictive for the Democrats. 

Also, it looks like the Federal Reserve will use "first in/last out" sequencing for monetary policy unwind. First, special programs will be unwound. Then the volume of asset purchases will be dialed back. Then interest rates will be lifted. That sequencing means that it could be a year or more before we see lift off from the near-zero short term rates.

We expect the Federal Reserve to maintain its stance of "patient accommodation" through the summer. We also expect to hear more discussion on the wind down of special programs and asset purchases. We look for a reduction in asset purchases before the end of the year. The upcoming Federal Open Market Committee meeting of June 15/16 will reveal a new Dot Plot and new economic projections, hopefully providing some insight into the Fed's views on inflation and growth.

On the margin, consumer spending is colliding with low inventories for housing, automobiles, appliances and many other products. Even with strong demand and ample funding, auto sales dropped in May. Home sales are on a declining trend this year.

The Consumer Price Index increased by 0.6 percent in May, following a 0.8 percent increase in April and a 0.6 percent increase in March. For the year ending in April, headline CPI was up by 5.0 percent. April and May saw broad-based consumer price gains well beyond energy. Core CPI (all items less food and energy) increased by 0.7 percent in May and was up by 3.8 percent over the previous 12 months.

Unemployment insurance claims continued to trend lower. Initial claims for the week ending June 5 fell by 9,000 to reach a post-pandemic low of 376,000. Continuing claims fell by 258,000 for the week ending May 29, to hit 3,499,000. The total number of unemployment insurance claims for all programs fell by 95,099 for the week ending May 22, to 15,349,465.

The Job Openings and Labor Turnover Survey (JOLTS) for April showed a new all-time high of 9.3 million job openings for the month. Hiring was little changed at a strong 6.1 million for the month.

The National Federation of Independent Business’s Small Business Optimism Index was little changed in May, easing slightly to a subdued 99.6. According to the NFIB survey, small businesses were still drawing down inventory in May. Tight labor supply remains a key issue for many small businesses.

Mortgage applications for purchase were little changed, gaining 0.3 percent, for the week of June 4. On a four-week moving average basis, purchase apps are now down 7.8 percent from a year ago. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage eased to 3.15 percent.

The U.S. international trade gap narrowed in April, taking a break from the widening trend that began in early 2020. For the month of April, exports were up by $2.3 billion over March, supported by commercial aircrafts. Imports fell by $3.8 billion, with fewer consumer goods coming in. The weaker dollar is a positive for U.S. trade but it stokes import price inflation.

For a PDF version of this publication, click here: Comerica Economic Weekly, June 11, 2021

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June 11, 2021
Robert A. Dye, Ph.D., Senior Vice President and Chief Economist at Comerica Bank

Robert A. Dye, Ph.D.

Senior Vice President and Chief Economist
Daniel Sanabria, Senior Economist at Comerica Bank

Daniel Sanabria

Senior Economist

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