US Housing Starts and Completions Soar on Strong Apartment Construction Growth
Economic news and commentary for March 16, 2023
US Housing Starts
The housing market appears to have seen a strong February as starts and permits both recovered sharply in the month. US housing starts jumped 9.8% MoM to levels not seen since September 2022. The annual decline continued to be retraced and is now only at -18.4% YoY. The gains, however, were restricted to the multi-family market where starts jumped 24.1% MoM. Single-family starts were up only 1.1% MoM and are still down a sharp -31.6% YoY. It was a similar story in the permit data. General permits issued jumped 13.8% MoM with multi-family permits ascending 24.3% MoM. Single-family permits issued were stronger than starts but still fell short of multi-unit permits, up 7.6% MoM. This data tends to be forward-looking, so one might take this strong increase to suggest the bottom in the single-family market is around the corner.
Housing completions also saw a strong increase which is good news on the inventory front. Total completions totaled 1.56 million, which is the largest post-Global Financial Crisis era monthly increase on record. Thanks to high rents, multi-unit completions surged 44.6% MoM as developers continue to seek to bring new apartments online to secure those high rent levels. As a result of higher supply, surging multi-family completions will also act to contain rent growth in the near term. On the other hand, single-family completions were still muted, up just 1.0% MoM. In general, supply chain pressures have returned near pre-pandemic levels which are facilitating construction projects through lower input costs. However, interest rates are high and the upside risk to growth in inventory is contained.
Still to come…
9:15 am (EST) - ECB Announcement
10:30 am - US EIA Natural Gas Report
4:30 pm - US Fed Balance Sheet
Morning Reading List
Other Data Releases Today
Japan's trade balance improved from -¥2.2 trillion to -¥0.7 trillion in February with exports up 13.5% MoM and imports down -7.4% MoM. Exports to China improved around 36% MoM as demand improves as a result of reopening. Energy imports continue to slide.
Japanese machinery orders crashed -10.2% MoM in Jan as export orders from abroad collapse -25.2% MoM. Domestic private sector orders grew 12.0% MoM, boosted by nonmanufacturing orders up 19.5% MoM. Q1 2023 orders are forecasted to grow 3.8% MoM.
Australia added 64,600 jobs in February, and the unemployment rate fell from 3.7% to 3.5%. The number of unemployed fell -16,500. The participation rate edged up 0.1 ppts to 66.6%, and the underemployment rate also fell, down -0.3 ppts to 5.8%.
Italian CPI growth in February was revised down slightly in the 2nd estimate to 0.2% MoM and 9.1% MoM from 0.3% MoM and 9.2% MoM. The goods subindex was downgraded to 0.0% MoM from 0.1% MoM on non-energy goods and food inflation downgrades.
Jobless claims fell -20,000 to 192,000 last week. The insured unemployment rate was unchanged at 1.2%. Continued claims were down -29,000 to 1.7 million.
US import prices fell -0.1% MoM and -1.1% YoY, export prices up 0.2% MoM but down -0.8% YoY in February. Fuel imports were down -11.6% YoY (-4.9% MoM) while nonfuel imports were up slightly at 0.2% YoY (0.4% MoM). Agriculture exports were up the most at 3.3% YoY (1.0% MoM) while non-agriculture exports fell -1.5% YoY (0.1% MoM).
The Philadelphia Fed Manufacturing Survey Business Activity index edged up 0.9 pts to -23.2 in February. The New Orders index fell -14.6 pts to -28.2, and the Shipments index fell -34.1 pts to -25.4. The Prices Paid index was down -3.0 pts to 23.5, and the Prices Received index was down -7.0 pts to 7.9.
Australia Employment
Australia: Employment surges (ING) - After the Reserve Bank of Australia's (RBA) recent statement hinting that peak cash rates might be just one hike away, today's labour data is a timely reminder to be very wary of such forward guidance.
US Retail Sales
February Retail Sales Pull Back from January Surge (Wells Fargo) - Retail sales softened in February, with the headline figure declining 0.4%. The core components of retail sales demonstrated continued strength, with control group sales up 0.5%. Softness in this month's report follows upward revisions to last month's seasonally strong print. All told, this report looks to be some normalization coming out of January's surprise retail sales surge.
U.S. Retail Sales Not Quite Under Control (BMO) - The pullback in February retails sales was a small step back after the prior month's giant leap. American consumers still appear to be spending at a rate that will make the Fed uncomfortable with the inflation outlook, warranting a further tap on the brakes. Of course, the Fed now has bigger fish to fry, making next week's decision less dependent on the data and more reliant on how the banking turmoil evolves.
Retail sales soften in February, meeting consensus expectations (TD Bank) - On the surface it looks like consumers stopped spending in February, but with upward revisions in January, an average nominal growth for this quarter is 8.6% (annualized). We think that this strength is attributable to warmer weather and expect more give back in March. Still, strong momentum puts our estimates of real consumer spending on track to advance by 3.0% (annualized) in the first quarter.
US Retail sales: control group extends strength (CIBC) - February painted a mixed picture for US retailers on the surface, as total sales dropped off by 0.4%, but the closely watched control group of sales, which feeds more directly into non-autos goods consumption in GDP, rose by a strong 0.5%.
Shoppers take a breather (EY Parthenon) - Retail sales fell back last month after surging in January and showing considerable volatility at the turn of the year. Nominal sales declined 0.4%, but the volume of sales fell 0.8% when adjusted for the 0.4% increase in consumer prices reported for February.
Retail Sales Declined 0.4% in February (First Trust Portfolios) - Retail sales cooled in February after an abnormally strong print in January that had more to do with one-off factors rather than with fundamentals of the economy. Prior months’ numbers were revised higher, as well, and, including revisions, retail sales rose 0.1%, beating the consensus expected 0.4% decline.
US PPI
US pipeline price pressures ease, giving another excuse for a Fed pause (ING) - US data shows soft producer price inflation and retail sales, which gives the market further excuse to push in the direction of a no change Fed decision next week. Coupled with an inevitable tightening of lending conditions given recent events the need for extra hikes is doubtful.
The Producer Price Index (PPI) Declined 0.1% in February (First Trust Portfolios) - Producer prices slipped 0.1% in February, further clouding the Fed’s decision-making process as it heads into next week’s meetings. Today’s data comes in contrast to yesterday’s CPI report which showed consumer prices up 0.4% in February and up 6.0% in the past year.
US
Macro Insights: The Fed question lingers - to hike or not to hike (Saxo Bank) - US CPI release was broadly in-line with expectations although the core came in hotter-than expected MoM, bringing a 25bps rate hike from the Fed back on the table for next week if further market disorders are avoided. However, growth concerns have risen with banks likely to tighten lending standards which could have a larger and quicker impact on the real economy compared to a rate hike. Near-term volatility could persist but heightening margin pressures especially in smaller enterprises could mean further flight to quality.
Banking sector stress: unique conditions and a fluid outlook (EY Parthenon) - The major question for the Fed is whether it will pause its monetary policy tightening cycle – adopting a prudent risk management approach – or whether it will want to proceed with a dual-track approach to policy making – distinguishing monetary policy from macro-prudential policy.
What the SVB closure may mean for markets (Fidelity) - News has been breaking fast in recent days in the aftermath of the closures of Silicon Valley Bank (SVB) and Signature Bank. While the news cycle has been moving quickly and markets are still adjusting, here is an initial look at what has happened so far, and what it may mean for markets.
Builder Confidence Edges Higher in March but Future Outlook Uncertain (NAHB) - Although high construction costs and elevated interest rates continue to hamper housing affordability, builders expressed cautious optimism in March as a lack of existing inventory is shifting demand to the new home market.
It isn’t pretty, but inflation is cooling (EY Parthenon) - Looking ahead, we foresee headline CPI inflation falling to 2.3% y/y by Q4 2023 while core inflation is expected to moderate to 3.0% y/y. Much remains to be seen as to the outlook for the banking sector, broader financial conditions and the economy.
Europe
ECB Preview: Keep calm and breath (Saxo Bank) - The European Central Bank (ECB) cannot blink at that stage. It needs to deliver a 50-basis point interest rate hike at tomorrow’s meeting. Anything else would risk turning into a communication disaster. However, the pace of monetary policy is highly uncertain in the medium-term due to growth concerns and the ongoing market turmoil.
Macro Digest: European banks and liquidity risk driving this latest round of turmoil (Saxo Bank) - The biggest long position in the market is long European Bank Stocks based on rising interest margin and the perception of improving conditions. Their sharp sell-off is a major LIQUIDITY RISK to this market.
UK Chancellor’s medium-term challenges remain despite near-term boost (ING) - Lower energy prices have allowed the Chancellor to make a few headline policy changes. But with little-to-no headroom against his fiscal goals – and key question marks over how previously-announced spending restraint will be achieved – the Treasury's challenges have far from disappeared.
Flash Comment - Riksbank to hike 75bp +50bp from here (Danske Bank) - We change our Riksbank call from +50bp in April and +25bp in June to +75bp and +50%, resulting in a peak policy rate of 4.25% (3.75% earlier).
Swedish February inflation review: Intensified challenge (Nordea) - CPIF-inflation stood at 9.4% y/y in February, edging up from 9.3% in January. This was in line with forecasts. However, more important is that core inflation came out much higher than expected.
China
China’s Economy at a Glance – March 2023 (NAB) - Overall, data for China’s economic performance at the start of 2023 are quite mixed. Despite the reopening (since China abandoned its zero-COVID policies in early December), there has not yet been a wave of “revenge spending”. Given the likely weakness in demand for China’s exports in 2023, authorities have identified consumption as the key driver of growth this year – yet the big driver in January and February was investment. Our forecasts are unchanged this month, with China’s economy to grow by 5.4% in 2023 and 4.5% in 2024.
Canada
Canadian housing starts rebound in February (TD Bank) - Canadian housing starts came in at 244.0k annualized units in February, representing a 13% month-on-month (m/m) gain from January. Despite the increase, the six-month moving average dipped by about 4k to 255.7k units.
And, Now, What About Housing? (BMO) - The reset in interest rates over the past year has blown off some of the pandemic era froth in Canada's housing market, but there are signs that sales activity and prices may be close to a nadir. The recent sudden plunge in global bond yields, alongside the Bank of Canada's step to the sidelines, look to provide some support for housing, as does the ongoing job market strength.
Canadian home sales increased in February (TD Bank) - With February's gain, sales growth is now essentially flat on a 3-month moving average basis and suggests that a bottom in activity could be forming, at least in the near-term. That said, tighter rules governing mortgage lending are in the pipeline (although the timing of their implementation is uncertain), which should negatively impact sales and prices.
Inflation
Global Inflation Watch - Central banks balance inflation and financial stability risks (Danske Bank) - Inflation drivers continue to paint a mixed picture but inflation is likely to head lower through 2023 in US and the euro area. Price pressures from food, freight and energy have clearly eased. Labour markets remain tight, and while wage pressures have showed tentative signs of easing, underlying price pressures remain sticky.
Trade
Global Trade: As the world turns (ABN AMRO) - Global trade has cooled sharply. Outlook mixed: Slowdown in developed economies versus China reopening. Bottlenecks in global supply chains and supply-demand imbalances for goods have eased sharply. Delivery times have shortened ad container freight tariffs have lost over 80% from their peak levels. Shifting patterns: Trade between Russia and West shrinks, but Russian ties with other BRICs strengthen... ...and this complicates the already tense relationship between the US and China.
Mind the gap: the USD30trn global liquidity gap is here to stay (Allianz) - Global Working Capital Requirements (WCR) for listed companies increased by +9 days to 72 days of turnover in 2022 – the largest annual increase since 2008 – following an increase of +3 days in 2021. APAC (+10 days to 77 days of turnover incl. +15 to 59 days in China and +2 in Japan) and Western Europe (+7 days to 68 days) recorded the strongest increases, while North American and CEE firms only registered +6 additional days of WCR
Real Estate
House Prices Continue to Fall as Borrowing Costs Rise (IMF) - Property markets should enjoy greater stability when central banks slow or pause their campaign of raising interest rates to tame inflation.
Outlook
Americas CIO View Further tightening required: Fed Funds rate ex-ceeding 5% raises many risks (DWS Group) - The main theme of our CIO day was sticky inflation will force more hikes from central banks. This suggests a delayed but perhaps worse than slight recession. Our economists forecast 3.9% and 5.7% inflation for US and Europe in 2023. The U.S. Federal Reserve (Fed) Funds rate is expected to peak at near 5.5% in June.
Crypto
From Silvergate to Signature: Debanking crypto (Saxo Bank) - In no more than one week, two of the industry’s key banks namely Silvergate and Signature have ceased operations, leaving crypto somewhat separated from the traditional banking system. This may hurt the market’s liquidity and boost fear that crypto is about to be thoroughly isolated from traditional finance. Nonetheless, the largest cryptocurrencies trade higher, likely as the market expects fewer interest rate hikes for central banks not to negatively impact bond positions held by other banks.
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