We saw several important data releases this week and significant action and non-action by central banks. U.S. economic data for the week was generally softer than expected. However, data are still supportive of an increase in GDP growth in the second quarter.
Housing starts for May fell by 5.5 percent to a 1,092,000 unit annual rate. This is the weakest month since last September and the third consecutive monthly decline. It is also well below the rate of household formation indicating that ongoing tight supply conditions are likely in most residential real estate markets. Both single and multifamily starts fell in May. Permits fell by 4.9 percent in May, to a 1,168,000 unit annual rate. The bulk of the losses were in multifamily permits.
Even though residential construction numbers have been soft, builder confidence remains high. The National Association of Homebuilders’ Housing Market Index eased to a still-high 67 in early June. According to the NAHB, builders continue to express frustration about the shortage of skilled labor and buildable lots.
Industrial production for May was unchanged after surging by 1.1 percent in April. The May stall came as manufacturing output decreased by 0.4 percent, while utilities gained 0.4 percent and mining output increased by 1.6 percent. Vehicle assemblies eased from an 11.77 million unit annual rate in April to 11.54 in May.
With gasoline prices lower in May, the headline Consumer Price Index dipped by 0.1 percent. The energy price index was down by 2.7 percent. Excluding food and energy, core CPI increased by 0.1 percent. Over the previous 12 months, the headline CPI was up by 1.9 percent, while core CPI was up by 1.7 percent.
The Producer Price Index for final demand was unchanged in May. Over the previous 12 months, the PPI for final demand increased by 2.4 percent, and core PPI was up 2.1 percent.
The price of West Texas Intermediate crude oil dropped at the end of the week to below $45/barrel as inventories of crude oil and refined products remain high. This could set up weak inflation numbers for June.
Retail sales for May eased by 0.3 percent, in part due to lower gasoline prices. Service station sales were off by 2.4 percent for the month. Despite the soft nominal retail numbers for May, real (inflation adjusted) consumer spending in the second quarter looks like it is bouncing back after a weak first quarter, supportive of GDP growth.
Despite the soft data for May, small business optimism remains high. The National Federation of Independent Business said that their small business optimism index remained at a strong 104.5 in May.
The Federal Reserve raised the fed funds rate range to 1.00-to-1.25 percent on Wednesday. The Bank of England kept their key interest rate unchanged, as did the European Central Bank and the Bank of Japan. The dollar strengthened against a broad basket of currencies yesterday.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: Comerica Economic Weekly 06-16-2017