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Weekly Economic & Financial Commentary: Is Fed “Tapering” Imminent?


United States: Housing Begins to Bump Up Against Supply Constraints

  • Housing starts fell 9.5% in April, as material shortages weighed on activity. The NAHB/Wells Fargo Housing Market Index held steady at 83 in May, indicating continued strength in residential construction. Low inventories continue to hold back existing home sales, which slipped 2.7% in April. The Leading Economic Index (LEI) jumped 1.6% in April to a record high, foreshadowing a strong Q2, despite the headwinds.
  • Next week: Consumer Confidence (Tues.), Durable Goods (Thurs.), Personal Inc. & Spending (Fri.)

International: Asia Slows Down, Europe Speeds Up

  • While the global economy remains on a recovery path, this week’s international news was mixed. China’s April retail sales and industrial output slowed more than forecast, and Japan’s GDP fell in Q1. In contrast, the Eurozone services PMI rose to its highest level since 2018, and the U.K. May PMIs suggested a sturdy economic expansion.
  • Next week: RBNZ Policy Ann. (Wed.), German IFO Bus. Confid. (Wed.), Eurozone Eco. Confid. (Fri.)

Interest Rate Watch: Is Fed “Tapering” Imminent?

  • The minutes of the April 27-28 FOMC meeting garnered more attention than usual because of one sentence. Specifically, that “a number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”

Credit Market Insights: The Case for “Foregone Consumption”

  • Outstanding credit card balances remain $157 billion below their 2019 value through the first quarter. In addition to fiscal support, the inability to spend on many services or what we have denoted as forced thrift has likely freed up extra cash to use to service outstanding debt.

Topic of the Week: The Electric Slide

  • Cryptocurrencies are notoriously choppy, but the volatility has been dialed up a few notches recently. Since major swings in the stock market can weigh on consumer confidence and spending, this week we examine how big of a deal recent crypto-volatility is for U.S. households.

U.S. Review

Housing Begins to Bump Up Against Supply Constraints

Over the past year, the housing market has become white-hot. Low mortgage rates and increased household space needs have propelled home sales, builder confidence and residential construction to highs not seen since the housing boom in the early 2000s. Like many other parts of the economy, however, robust housing market activity appears to be bumping up against some supply constraints.

Housing starts fell 9.5% to a still-strong 1.57-million unit pace in April. Unusually wet weather in the South and Midwest may have contributed to the decline, but the larger-than-expected drop looks to be primarily owed to shortages of building materials and qualified labor. Shortages of lumber, copper and appliances have caused the prices of those building materials to skyrocket, and builders appear to be delaying project starts as a result. Single-family starts fell 13.4% during the month, while multifamily starts edged up 0.8%. Apartment projects appear to be moving forward again alongside rebounding leasing activity, both in the suburbs and hard-hit urban markets.

Home builders remain upbeat about the current state of the housing market, despite these supply-side challenges. The NAHB/Wells Fargo Home Builders Index held steady at the elevated level of 83 in May. The current sales conditions series remained unchanged at 88, while prospective buyer traffic fell one point to 73. Both series remain near historic highs.The recent strength in the HMI indicates that new residential construction will likely continue at a fairly robust pace.