Vital Signs: Housing Woes Easing?

On tap: May housing starts and the Conference Board's leading economic indicators index, the Philadelphia Fed's June factory activity index

Economists, including Federal Reserve Chairman Ben Bernanke, expect the housing market to keep shrinking this year. But the sector's negative impact on the economy at large may already be waning. After contracting at an annualized pace of more than 15% in each of the past three quarters, some Wall Street economists expect a decline of less than 10% in the second quarter. And there is a more general consensus of a gradual dissipation in the drag over the second half of 2007.

In a rather light week for economic data, investors will focus on some new housing data to see if these expectations are on the mark. The biggest number to watch is housing starts. Economists expect a decline in the annual pace of starts for May, but that comes after a surprisingly upbeat result in April. If starts once again come in stronger than forecast, it would reinforce the notion that housing conditions are now stabilizing rather quickly.

Two other housing related numbers also will deserve attention. The first is mortgage applications. The recent upswing in longer-term interest rates has also caused mortgage rates to climb. Investors will be looking at purchase-application figures to see if higher rates are keeping some potential buyers on the sideline. In order for residential construction to stop declining at a double-digit pace, demand must hold up. The other housing report of interest will be the National Association of Home Builders' Housing Market Index. After showing some signs of improvement in the first quarter, builders turned more negative in recent months.

Signs of resilience in consumer spending and improving business investment have assuaged concerns that housing will flatten the rest of the economy. The new question for housing may soon be: How long will housing keep the Fed from considering an interest rate increase?

Here is the weekly economic calendar, from Action Economics.

Report Date Time For Median Estimate Last Period
Housing Starts (million) Tuesday, June 19 8:30 a.m. May 1.487 1.528
Leading Indicators Thursday, June 21 10:00 a.m. May 0.3% -0.5%
Philadelphia Fed Survey Thursday, June 21 12:00 p.m. June 6.0 4.2


Monday, June 18, 7:00 p.m. EDT

Federal Reserve Bank of Boston President Cathy Minehan gives the opening remarks at the Boston Fed's 52nd annual research conference entitled "Labor Supply in the New Century" in Chatham Massachusetts.


Monday, June 18, 1:00 p.m. EDT

The National Association of Home Builders and Wells Fargo bank will release the Housing Market Index for June. The report measures housing market conditions by surveying builders' on current sales, buyer traffic through model homes, and expectations for sales during the next six months. After a small improvement during the first quarter of the year, sentiment among builders has deteriorated. The May reading fell to 30, from 33 in April, and 36 in March. The index bottomed out at 30 back in September of 2006. A reading below 50 indicates that more builders view conditions as poor than good.

All the components fell as well. The index tracking current single-family home sales fell to 31, from 33 in April. Expectations for the coming six months dropped to 41 in May, from 44 the month before. Respondents also reported a further dropoff in buyer traffic.


Tuesday, June 19, 8:15 a.m.


Federal Reserve Bank of Boston President Cathy Minehan gives an introductory speech at the Boston Fed's 52nd annual research conference entitled "Labor Supply in the New Century" in Chatham Massachusetts.

7:45 a.m. EDT

Former Federal Reserve Chairman Paul Volcker gives a breakfast speech on "Corruption in the Financial World" at Georgetown College in Georgetown, Kentucky.


Tuesday, June 19, 7:45 a.m. EDT

This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank, will update buying activity for the week ended June 16. Sales climbed 1% for the week ended June 9, after a 0.5% drop. The yearly pace of growth slowed some more to 2.1%, from 2.3% for the week ended June 2.


Tuesday, June 19, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the second fiscal week of June, ended June 16. In the first week ended June 9 sales were off 1% from the same period in May. That follows an increase in sales of 2.1% for the entire month of May.


Tuesday, June 19, 8:30 a.m. EDT

Housing starts probably fell back in May after an unexpectedly strong gain in April. The April annual pace of starts was 1.53 million, from 1.49 million in March. The bouncing around of starts is doe in part to swings in weather over the past several months. Notably, mild weather back in December resulted in a large number of starts only to plunge in January after more seasonal conditions took hold. On a yearly basis, it appears that the contraction in housing activity is diminishing. In April, starts were off 16.1% from a year ago, from a 24.1% decline in March and 30% in February.

What caught the market's attention last month was the plunge in housing permits for April. The annual pace slowed to 1.46 million, from 1.57 million in March. For single-family homes, the pace of authorizations fell to 1.08 million, from 1.13 million in March. On a yearly basis, authorizations are still falling at a faster pace than starts which some analysts believe means a further slowdown to come in starts. However, builders are holding a large number of permits for projects that have yet to break ground. In the short term this large stockpile could distort any relationship that permits and starts have.


Wednesday, June 20, 11:30 a.m. EDT

Federal Reserve Bank of San Francisco President Janet Yellen gives the introductory remarks at the San Francisco Fed's conference entitled "Trends in Asian Financial Sectors" in San Francisco.

12:15 p.m. EDT

Federal Reserve Bank of New York President Timothy Geithner gives the keynote speech at the San Francisco Fed's conference entitled "Trends in Asian Financial Sectors" in San Francisco.


Wednesday, June 20, 7 a.m. EDT

The Mortgage Bankers Association issues its mortgage application volume data for home buying and refinancing for the week ending June 15. In the week ended June 8 the purchase index hit its highest level since the first week of January at 464.7. In the week ended June 1, the index rose to 433.6. The refi index bounced back to 1854.8, after falling to 1757.1 in the week ended June 1, from 1874.6 in the prior period.

The four-week moving average for the purchase index climbed to 440.8, from 432.8. The four-week average for the refi index eased for a third straight period 1910.3, from 1975.5. The gains this week may not last as mortgage rates march higher. The average 30-year fixed-rate mortgage bounced to 6.61%, after jumping to 6.35% in the week of June 1.


Thursday, June 21, 9 a.m. EDT

The Federal Reserve's Consumer Advisory Council holds a meeting on the Truth in Lending Act and the Home Ownership Equity Protection Act in Washington, D.C.


Thursday, June 21, 8:30 a.m. EDT

Jobless claims for the week ended June 9 held steady at 311,000, after a slight upward revision to the original figure of 309,000 for the week ended June 2. The four-week moving average rose to 311,250, from 307,500 in the week ended June 2.

Continuing jobless claims for the week ended June 2 also held steady, at 2.5 million. Initial claims remain at levels consistent with a healthy labor market.


Thursday, June 21, 10 a.m. EDT

The Conference Board's composite index of leading economic indicators probably improved in May. The April index plunged 0.5% after a 0.6% jump in March. The latest decline was driven by a slide in housing permits, a reduction in the weekly average number of hours worked among manufacturing workers, and a small rise in initial claims. The fact that the federal funds rate was higher than the 10-year Treasury rate also weighed on the index.

The May index will get some support from a reversal in initial claims back to lower levels. Also, a rally in stock prices during May and s small improvement in consumer expectations should also lead the expected rebound. However, a further decline in the average length of the manufacturing work week will limit the potential gain.


Thursday, June 21, 12 p.m. EDT

The Philadelphia Federal Reserve Bank's factory activity index for the mid-Atlantic region is expected to improve a little more in June. The index managed a small improvement to 4.2 in May, from 0.2 in both April and March. Among the other indexes the results were mostly more positive. New orders, shipments, and employment increased while inventories contracted further. The components point to a recovery in demand and overall activity after two weak quarters.

Respondents also expressed more optimism about the future six months. The general business activity index climbed to 30.8 in May, the highest reading since December of 2005. Expectations for orders improved a bit, and manufacturers said hiring and capital spending increase.


Friday, June 22, 8:45 a.m. EDT

Federal Reserve Bank of Cleveland President Sandra Pianalto speaks about financial innovations at the Cleveland Fed's 2007 Community Development Summit entitled "Partnering for Success" in Cleveland.



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