Comerica’s Michigan Index inched higher in October

Economic activity increased for the fourth consecutive month, but the rate of improvement is slowing.
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Comerica Bank’s Michigan Economic Activity Index increased for the fourth consecutive month in October, reflecting improving economic conditions prior to the current surge in coronavirus cases.

The bank’s Michigan index increased in October to a level of 106.2, a reading that was 22% higher than the historical low. The index averaged 117.9 points for all of 2019, 0.6 points below the index average for 2018. September’s index reading was 105.6.

Although the Mitten State’s index increased for the fourth consecutive month in October, its rate of improvement declined for each of the last three months, which according to Robert Dye, Comerica’s senior vice president and chief economist, was an “ominous” sign.

“I’m still optimistic for the second half of (2021), but … the rate of improvement has steadily declined over the last four months, and I think we’ll see that decline even more. We’ll see the index flatten out once we get November and December numbers.”

Dye said Comerica expects to see state indexes cooling more due to states and cities needing to respond to “critically limited” hospital capacity by tightening and extending social mitigation policies.

But overall, he described the October index, with its mixed results, as showing a “strong but partial bounce back” for the Michigan economy, which is a pattern Comerica is seeing across all states.

Four out of nine index components for Michigan were positive in October, including nonfarm employment, unemployment insurance claims (inverted), housing starts and house prices. The five negative components were industrial electricity demand, light vehicle production, total state trade, hotel occupancy and sales tax revenue.

While overall manufacturing conditions are improving globally, in the U.S. and in Michigan, the critical auto industry looks vulnerable to weaker sales this winter. Light vehicle production increased in November to an 11-million-unit annual rate as sales slipped to a 15.9-million-unit rate nationwide, down from 16.3 million in September and October.

Surging coronavirus cases, combined with declining consumer confidence in December, may result in weaker auto sales and production this winter, Dye said. Further drag may come from weaker U.S. personal income in December.

Dye said for consumer confidence to increase, vaccines will need to be rolled out efficiently in 2021, signaling there’s an end in sight to the pandemic. 

He said he believes the passage of the $908 billion fiscal stimulus package in late December will help unleash some consumer spending to bolster the first-quarter GDP, and with the presidential election and outcome of the Georgia Senate runoffs decided, it’s possible more stimulus funds will be coming early this year to shore up the economy.

The Michigan Economic Activity Index consists of nine variables: nonfarm payroll employment, continuing claims for unemployment insurance, housing starts, house price index, industrial electricity sales, auto assemblies, total trade, hotel occupancy and sales tax revenue.

All data are seasonally adjusted. Nominal values have been converted to constant dollar values. Index levels are expressed in terms of three-month moving averages.

Comerica Incorporated (NYSE: CMA) is a financial services company headquartered in Dallas and strategically aligned by three business segments: The Commercial Bank, The Retail Bank and Wealth Management. In addition to Texas, Comerica Bank has locations in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico.

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