US Home Construction Stalled, Continuing Growth in Question

US Home Construction Stalled, Continuing Growth in Question

US Home Construction Stalled, Continuing Growth in Question

$DIA,  $SPY,  $QQQ,  $VXX

  • May Housing Starts and June Preliminary Consumer Confidence
  •  Starts: -5.5%; 1-family: -3.9%
  • Permits: -4.9%; 1-Family: -1.9%
  • Consumer Confidence: down 2.6 points
  • The downward trend in home construction does not augur well for growth in 2-H
  • Business leaders and owners, whether they are involved with small or big businesses, are exuberant.
  • The optimism does not seem to be translating into surging economic activity.
  • The latest signal that the economy is bumping along comes from the home construction numbers. Housing tarts fell sharply in May, with both single-family and multi-family activity declining.
  • This was the 3rd consecutive decline in activity.
  • There were big reductions in home building in the Midwest and South, while conditions were flat in the Northeast. The West posted a gain.
  • The level of starts is the 2nd lowest over the past 18 months. While permit requests are falling as well, they are still running a little above starts, so could see some improvement in construction in the next 2 of months.
  • Nothing  great is expected.

Consumer confidence continues to fade. The University of Michigan’s Consumer Sentiment Index (MSI) fell sharply in the 1st part of June. Both the current conditions and expectations components were down.

Consumers are still optimistic.

The expectations index was the lowest since October 2016, and below its June 2016 number.

As for inflation, the near-term expectations were stable, people now believe inflation will be higher over the next 5 years, surprising given the recent slowing in price increases.

Many analysts and the Atlanta Fed see Q-2 growth to be pretty solid, somewhere in the 3.2% range. But the data that have come in recently raise doubts whether that handle could be reached.

Housing has been a key driver of growth over the past 2 Quarters, but that does not look like it is the case during the current Quarter. In addition, the slide in vehicle sales does not augur well for Q-2 consumption.

Businesses waiting for indications about the shape of tax changes, so do not expect capital spending to be great either.

With all of that in mind, then expect forecasters will be marking down their Q-2 GDP growth estimates.

The Big Q: Why is that important.

The Big A: Because now that the Fed has moved 2X this year, and so confidence is need for economic growth to continue, for the Fed process to continue.

The Fed says it want to continue raising rates at a steady pace and once it begins shrinking its $4.5-T balance sheet.

For those things to happen, the economy has to expand at least at the trend rate of roughly 2% to 2.25%, and that cannot be ruled out.

As for investors

The reason to be Bullish: there will be significant tax changes, be it real reform or tax cuts.

We wait, we watch, and we take what the market gives.

Friday, Quad Witching Day, the major US major stock market indexes finished at: DJIA +24.38 at 21384.28, NAS Comp -13.74 at 6151.73, S&P 500 +0.69 at 2433.15

Volume: Quad Witching trade on the NYSE came in at N/A exchanged.

  • NAS Comp +14.3% YTD
  • S&P 500 +8.7% YTD
  • DJIA +8.2% YTD
  • Russell 2000 +3.6% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Bullish (0.37) Neutral (0.19) Bullish (0.42) Very Bullish (0.51)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Bullish (0.38) Neutral (0.24) Bullish (0.31) Very Bullish (0.58)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Bullish (0.26) Neutral (0.09) Neutral (0.10) Very Bullish (0.58)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Bearish (-0.31) Bearish (-0.25) Bearish (-0.39) Bearish (-0.29)

Have a terrific weekend.


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