As the June FOMC meeting begins, hawks at the Fed will have some evidence to back up claims that the economy is rebounding after the poor first quarter, primarily in the areas of employment and housing.
By Peter Martin
Tuesday, June 16, 2015
However, this is unlikely to outweigh the loss of momentum in the manufacturing sector and the negative impact of international developments, currently dominated by the Greek crisis.
The labor market has been fairly consistent in its progress and we’ve come a long way in the last few years: unemployment has decreased from above 9% in 2011 in a fairly straight line down to its current rate of 5.5%. Housing has been subject to a lot more volatility, and we saw some substantial dips early this year, but overall the trend has also been very healthy over the last few years, with the annual pace of housing starts doubling from the trough of 2009 through to the 7-year high set in April this year of 1.165 million units (upwardly-revised in data released today from the 1.135 million that was reported last month).
The pace of new construction eased in May from that high point, dropping back to an annualized, seasonally-adjusted rate of 1.036 million, a decline of some 11.1%. Though this was below expectations, the strength in building permits should keep hopes buoyant that the sector can keep the momentum going. Building permits surged 11.8% to 1.275 million, adding to the 9.8% rise see in the previous month, and now stands at its highest level since August 2007. Along with the strength seen in yesterday’s report from the National Association of Home Builders, whose housing market index climbed to post-recovery high of 59 this month, the evidence seems to suggest housing is providing a boost to the economy after dragging in the winter months.
Despite these positive signs, the issue with the most muscle in terms of shaping investor sentiment currently is Greece. Not only do we have an impasse between Greece and its creditors, but the deadlock seems stronger than ever, despite both sides being clearly aware of what little time remains to find a solution — Greece must make a €1.6 billion repayment to the IMF in two weeks. Eurozone finance ministers are due to meet on Thursday to discuss the situation, though Greek Prime Minister Alexis Tsipras is set to stick to his plans of visiting Russia for an economic forum.
Concerns over Greece are likely to be temporarily overshadowed by the Fed announcement on Wednesday, but until the uncertainty is removed and firm news emerges regarding Greece’s future, it will be no surprise if the issue comes back to the fore later in the week.
Worries over Greece contributed to broad declines in Asian stocks overnight, but the US stock market has opened with modest gains following yesterday’s substantial decline. Shortly after the opening in New York, the Dow Jones was up 52 points or 0.29% at 17,843, while the S&P 500 Index rose 0.19% to 2088.5.
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