Naroff: Economist not trusting the process




INDICATOR: Might Housing Begins and June Preliminary Shopper Confidence

KEY DATA: Begins: -5.5 %; 1-household: -three.9 %; Permits: -four.9 %; 1-Household: -1.9 %/ Confidence: down 2.6 factors

IN A NUTSHELL: “The downward development in house development doesn’t bode properly for progress both this quarter or this yr.”

WHAT IT MEANS: Enterprise leaders and house owners, whether or not they’re concerned with small or huge companies, are exuberant. However the optimism doesn’t appear to be translating into surging financial exercise. The newest sign that the financial system is bumping alongside comes from the house development numbers.

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Housing begins fell sharply in Might, with each single-household and multi-household exercise declining. This was the third consecutive decline in exercise. There have been massive reductions in house constructing within the Midwest and South, whereas circumstances have been flat within the Northeast. Solely the West posted a achieve, and it wasn’t something nice. The extent of begins is the second lowest over the previous eighteen months. Whereas allow requests are falling as properly, they’re nonetheless operating a bit of above begins, so we’d see some enchancment in development within the subsequent couple of months. Nonetheless, don’t anticipate the speed to be something nice.

Shopper confidence continues to fade. The College of Michigan’s Shopper Sentiment index fell pretty sharply within the first a part of June. Each the present circumstances and expectations elements have been down. Shoppers are nonetheless fairly optimistic, however the bloom is off the rose relating to the euphoric outlook that folks had after the election. Certainly, the expectations index was the bottom since October 2016 and is up solely modestly since final June. The present circumstances index is definitely under its June 2016 quantity. As for inflation, whereas close to-time period expectations have been secure, individuals now consider inflation can be larger over the subsequent 5 years. That was shocking given the current slowing in worth will increase.

MARKETS AND FED POLICY IMPLICATIONS: I’ve been anticipating second quarter progress to be fairly strong, someplace within the three % vary. However the knowledge which have are available lately increase doubts whether or not that deal with might be reached. Housing has been a key driver of progress over the previous two quarters, however that doesn’t seem like it’s the case through the present quarter. As well as, the slide in car gross sales doesn’t bode properly for second quarter consumption. And with…



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