Comerica Bank's California Index Declines Sharply in September

Rhea-AI Summary

The Comerica California Economic Activity Index saw a sharp decline of 5.8% annualized in the three months ending September 2022, despite a 5.8% year-over-year increase. September showed a downturn with seven of the index's nine components falling. Employment saw a modest rise of 5,300, significantly below the 65,300 average in the previous months. Indicators suggest a softening labor market and declining industrial activity, with housing starts rising unexpectedly while house prices fell 6.8% since May. Challenges from high inflation, rising interest rates, and slowing consumer spending are anticipated.

Positive

• Year-over-year increase of 5.8% in the index.
• Modest employment growth in September.

Negative

• 5.8% annualized decline in the index over the last three months.
• Continuing claims for unemployment insurance rose for three consecutive months.
• Industrial electricity consumption fell by 3.2% in Q3.
• Significant decline in hotel occupancy rates by 4.6% and air passenger traffic by 10.2% in Q3.
• Weak housing market with a 6.8% drop in house prices since May.

DALLAS, Dec. 13, 2022 /PRNewswire/ -- The Comerica California Economic Activity Index declined at a 5.8% annualized rate in the three months through September. The Index has slowed from the robust increases in the first half of the year. The index was still up 5.8% from a year earlier in September, but this overstates its strength since its month-over-month growth stalled last autumn.

Seven of the Index's nine components fell in September. Employment rose, but by a modest 5,300, well below the 65,300 average gain of the first eight months of the year. Continuing claims for unemployment insurance rose for the third consecutive month, suggesting California's labor market is in fact softening. Electricity consumption by California's industrial sector fell in September and was down 3.2% in the third quarter compared to the second.

Housing starts unexpectedly rose for a second consecutive month in September, while house prices fell for the fourth consecutive month and were down 6.8% compared to May. Housing affordability is a longstanding problem in California and has gotten worse as first home prices and then interest rates surged post-pandemic. Further declines in house prices and weak residential investment are likely going forward. The travel industry lost significant momentum in the third quarter: Hotel occupancy rates were down 4.6 percentage points from the second quarter, and air passenger traffic fell 10.2%.

California's economy faces headwinds from a weakening housing sector, rising interest rates, high inflation, and slowing consumer spending, and is expected to lose momentum in the coming months. The slowdown in the tech sector, a key industry of the Californian economy, is an additional negative for the Golden State.

The Comerica California Economic Activity Index is a monthly composite indicator of state economic activity. The Index provides a wholistic advance view of the state of California's economy, using economic data that are available about one quarter earlier than real GDP is released. The index is comprised of nine components: Nonfarm payroll employment, continuing claims for unemployment insurance, housing starts, house prices, industrial electricity sales, foreign trade, enplanements, hotel occupancy, and state revenues. All data are seasonally adjusted with nominal values converted to constant dollar values as appropriate. To filter out month-to-month volatility in the index components, the index is calculated from the three-month moving averages of its components. Values for a minority of components are projected from the prior months' release due to the timing of data releases.

Comerica Bank is a subsidiary of Comerica Incorporated (NYSE: CMA), a financial services company headquartered in Dallas, Texas, and strategically aligned by three business segments: The Commercial Bank, The Retail Bank and Wealth Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. Comerica reported total assets of $84.1 billion as of Sept. 30, 2022.

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

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SOURCE Comerica Bank

FAQ

What does the Comerica California Economic Activity Index report for September 2022?

The index declined by 5.8% annualized in the three months through September 2022, despite a year-over-year increase of 5.8%.

What are the main components of the Comerica California Economic Activity Index?

The index includes nonfarm payroll employment, unemployment claims, housing starts, house prices, industrial electricity sales, foreign trade, hotel occupancy, and state revenues.

How did California's labor market perform in September 2022?

The labor market showed signs of softening with only 5,300 jobs added and a rise in unemployment claims.

What are the economic challenges facing California as of September 2022?

Key challenges include high inflation, rising interest rates, and slowing consumer spending, alongside a weakening housing sector.

What impact did housing starts have in September 2022?

Housing starts unexpectedly rose for the second consecutive month, but house prices continued to decline.