Tom Moeller

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<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040720b.jpg" width="353"></p>
<p>Housing starts fell 8.5% last month to the lowest level since May of last year. June starts totaled 1.802Mversus the Consensus expectation for 1.95M. It was the largest m/m drop in starts since February 2003.</p>
<p>Single family starts paced the decline with a 9.5% skid to the lowest level since last May.</p>
<p>Multi-family starts fell 3.7%, the third consecutive monthly decline.</p>
<p>The decline in housing starts last month was across the country&#39;s regions, but was most pronounced in the West where starts fell 16.5% from a record high.</p>
<p>Building permits fell 8.2% m/m from a record high.</p>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM"> Housing Starts (000s, AR)</a></th>
<th scope="col"><u><b> June</b></u></th>
<th scope="col"><u><b>May</b></u></th>
<th scope="col"><b><u>Y/Y</u></b></th>
<th scope="col"><u><b> 2003</b></u></th>
<th scope="col"><b><u>2002</u></b></th>
<th scope="col"><u><b>2001</b></u></th>
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<td class="firstcol">Total</td>
<td>1,802</td>
<td>1,970</td>
<td>-2.6%</td>
<td>1,848</td>
<td>1,711</td>
<td>1,601</td>
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<td class="firstcol">&nbsp; Single-family</td>
<td>1,489</td>
<td>1,645</td>
<td>-1.1%</td>
<td>1,501</td>
<td>1,364</td>
<td>1,272</td>
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<td class="firstcol">&nbsp; Multi-family</td>
<td>313</td>
<td>325</td>
<td>-9.3%</td>
<td>347</td>
<td>347</td>
<td>330</td>
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<td class="firstcol">Building Permits</td>
<td>2,077</td>
<td>2,006</td>
<td>12.5%</td>
<td>1,831</td>
<td>1,750</td>
<td>1,637</td>
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Housing starts fell 8.5% last month to the lowest level since May of last year. June starts totaled 1.802Mversus the Consensus expectation for 1.95M. It was the largest m/m drop in starts since February 2003. Single family starts [...]

Housing Starts Fell Sharply

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) fell 2.3% (+6.2% y/y) in April to 101.0 after rising moderately in each of the prior four months. The recent high was 104.9 in September. The level of home affordability remained 12.3% higher than its low of 89.9 in October 2023. It remains 43.6% below the high of 179.2 in April 2020.

The decline in affordability in April occurred as the median price of an existing single-family home rose 2.6% (1.7% y/y) to $418,000, and mortgage rates rose to 6.81% from 6.73% in March. The price compared to the record $432,900 in June 2024. The rise in mortgage rates left them up from a recent low of 6.26% in September of last year and below a 7.70% high in October of 2023. It remained well above a December 2020 low of 2.73%. These changes raised the principal & interest payment by 3.5% (-1.0% y/y) to $2,182 per month. That was well above the most recent low of $984 in February 2020. Monthly mortgage payments averaged a higher 24.8% of income during April. They remained up from a low of 14.0% of income in April 2020.

The rise in housing costs in April was accompanied by improvement in median family income. It increased 1.0% (5.1% y/y) to a record $105,791 after rising 0.4% in each of the prior two months.

Housing affordability declined m/m across the country in April. The index fell 3.7% (+4.2% y/y) to 130.1 in the Midwest. It remains the most affordable region of the country. In the South, the index declined 1.1% (+8.3% y/y) to 105.6 and the affordability index in the Northeast declined 3.9% (+0.5% y/y) to 92.0. In the West, where homes are the least affordable, the index fell 1.1% (+7.7% y/y) to 71.0 in April.

The Housing Affordability Index (HAI) equals 100 when a median-income borrower qualifies for an 80% mortgage on a median-priced existing single-family home. The HAI had exceeded 100 in each month since July 1990 and reached its all-time high of 213.3 in January 2013.

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY**, and **DAILY**.

**Inflation Expectations** from the Federal Reserve Bank of Cleveland is available [here](https://www.clevelandfed.org/indicators-and-data/inflation-expectations).

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- Home prices & mortgage rates rise.
- Median income improves.
- Affordability falls across country.

U.S. Housing Affordability Declines in April

Andrew Cates

**The Blue Chip growth consensus**
Our first chart this week depicting shifts in consensus growth expectations highlights significant divergences in the economic outlook over the past six months and the more recent one-month period. Major downward revisions over the past six months have prominently affected economies such as South Korea, Mexico, Australia and Canada, indicating heightened vulnerability to external shocks, particularly from disruptions linked to intensified US trade policies. Conversely, China has shown a slight improvement, possibly due to an effective policy response. The recent one-month adjustments, however, exhibit much smaller and generally modest upward revisions, suggesting some stabilization or cautious optimism amid ongoing uncertainties.

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**The Blue Chip inflation consensus**
This next chart tracking consensus forecasts for CPI inflation in 2025 across the US, Euro area, and China reveals a striking divergence in inflation expectations. In the US, inflation projections rose steadily through late 2024 and early 2025, peaking above 3% before easing slightly. This upward drift likely reflects the lagged impact of the US economy's relative strength in 2024, including robust consumer demand and tight labour markets, rather than more recent tariff-related pressures. By contrast, Euro area forecasts have remained relatively low and stable, suggesting more subdued domestic dynamics and tighter policy. Meanwhile, China's CPI forecast has fallen sharply over the same period pointing to deepening demand-side weakness and lingering deflationary risks.

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**Supply chain pressures** 
Looking ahead, the tight correlation between the New York Fed’s Global Supply Chain Pressure Index and producer price inflation for advanced economies underscores the risks posed by US trade policies. As supply chain pressures potentially intensify—partly due to renewed protectionist measures—global producer price pressures could again escalate, creating renewed inflationary challenges and complicating central bank policy calibration.

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**US policy uncertainty**
As the chart below illustrates, US monetary policy uncertainty remains elevated, even as it has eased from its recent peaks. This persistent uncertainty continues to drive market volatility, reflecting investor unease over the Federal Reserve’s future policy path in the face of tariff-related disruptions and inflationary pressures. The chart specifically shows a potentially valuable tool for tracking this uncertainty – the Kansas City Fed’s measure of Policy Rate Uncertainty (KC PRU). This index is constructed from the prices of financial options linked to future short-term interest rates—rates that closely track the federal funds rate—and captures one-year-ahead uncertainty at a daily frequency dating back to the late 1980s.

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**The UK labour market** 
The UK labour market data released this week revealed a sharp deterioration, with substantial job losses indicated by payroll data alongside a rising unemployment rate. This surprising weakness not only signals immediate economic challenges but also complicates the BoE’s monetary policy response at a time when policymakers face persistent inflationary pressures and broader macroeconomic uncertainty.

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**Energy and growth**
Over the longer term, the strong historical correlation between primary energy consumption and GDP growth in advanced economies underscores the critical role of energy in sustaining economic stability. Persistently high real energy prices and complex energy transition processes present significant obstacles, particularly for energy-intensive economies like the UK, which seek sustainable growth trajectories amid heightened geopolitical and trade uncertainties.

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Financial markets have experienced considerable gyrations in recent weeks, reflecting substantial shifts in investor expectations and heightened uncertainty, largely driven by ongoing US tariff policies. Over the past six months, consensus growth forecasts have seen notable downward revisions across most major economies, though these have been partially offset by modest upward revisions in the past month (chart 1). Concurrently, consensus inflation projections have diverged significantly, with upward pressures in the US contrasting with deflationary risks in China (chart 2). Compounding these US issues, renewed protectionism appears to be pressuring global supply chains again, potentially increasing inflation risks and sustaining elevated monetary policy uncertainty (charts 3 and 4). This week's particularly weak UK employment data highlight immediate domestic economic fragility, while longer-term economic stability remains challenged by persistently high real energy prices and complexities surrounding the energy transition (charts 5 and 6).

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Charts of the Week: What’s Consensus?

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The Producer Price Index for final demand rose 0.1% (2.6% y/y) during May after falling 0.2% in April, revised from down 0.5%, and easing 0.1% in March, revised from unchanged, according to the Bureau of Labor Statistics (BLS). The Action Economic Forecast Survey expected a 0.2% increase in May. Producer prices excluding food, energy & trade services also edged up 0.1% (2.7% y/y) after falling an unrevised 0.1% in April and rising an unrevised 0.2% in March. The PPI excluding food and energy (the former core index) rose 0.1% last month (3.0% y/y) after declining 0.2% in April, revised from down 0.4%, and rising 0.3% in March, revised from 0.4%. A 0.3% increase had been expected.

A 0.1% increase (3.2% y/y) in final demand services prices held back overall pricing pressure last month and followed a 0.4% decline. Final demand trade services prices rose 0.4% (4.1% y/y) after falling 0.5%, while the trade of finished goods index rose 0.3% (3.9% y/y) following a 0.3% April decline. Transportation & warehousing prices fell 0.2% (+2.3% y/y) after a 0.1% improvement in April. Prices for final demand services less trade, transportation, and warehousing held steady last month (+3.0% y/y) after falling 0.3% in April.

The price index for final demand goods less foods & energy increased 0.2% (2.4% y/y) during May following a 0.3% increase. Nondurable consumer goods prices less food & energy rose 0.2% (2.2% y/y) after rising 0.4% in April. Durable consumer goods prices rose 0.4% (2.1% y/y) following a 0.2% rise. The private capital equipment price index improved 0.4% (3.0% y/y) following a 0.3% gain. Government prices less food & energy rose 0.2% (2.6% y/y) after rising 0.4% in April.

Food prices edged 0.1% higher (3.5% y/y) during May after falling 0.9% in April. Consumer good prices rose 0.1% (4.3% y/y) following a 1.2% decline. Energy prices for final demand held steady (-4.4% y/y) last month after rising 0.1% in April. Finished consumer energy prices rose 0.8% (-3.9% y/y) after holding steady in April.

Construction costs rose 0.3% (2.0% y/y) in May after falling 0.5% in April.

Prices for intermediate demand of processed goods edged 0.1% higher (1.9% y/y) in May after rising 0.3% in April. Processed energy goods prices fell 1.2% following a 0.4% rise while processed foods prices rose 0.5% after falling 0.9% in April.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.

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- Annual increase remains below January peak.	
- Core price gain slows y/y.
- Final demand goods price increase is steady y/y while services decelerate.

U.S. Producer Price & Core Price Indexes Edge Higher in May

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance were 248,000 in the week ending June 7, unchanged from the revised level in the week ending May 31. The previous week’s level was revised up by 1,000 from 247,000. The Action Economics Forecast Survey had expected 241,000. These data are seasonally adjusted by the Department of Labor. The 4-week moving average was 240,250, an increase of 5,000 from the previous week’s average of 235,250, which was revised up 250 from 235,000. It also is the highest level for this average since August 26, 2023, when it was 245,000.

The total number of unemployment insurance beneficiaries – also known as “continuing claims” – in the week ended May 31 was 1.956 million, up 54,000 from 1.902 million, revised from 1.904 million in the prior week. The Department of Labor reported that this is the highest level for insured unemployment since November 13, 2021, when it was 1,970,000. The 4-week moving average was 1.915 million, an increase of 19,750 from the previous week’s level of 1.895 million. This is the highest level for this average since November 27, 2021, when it was 1.924 million.

The insured unemployment rate for the week ending May 31, that is, the number of unemployment beneficiaries as a % of covered employment, edged up to 1.3% from the prior week’s 1.2%.

Economic conditions vary widely across states and territories. In the week ended May 24, the highest unemployment rates were in New Jersey (2.22%), Washington (2.06%), California (2.03%), Rhode Island (1.96%), and Massachusetts (1.87%). The lowest rates were in South Dakota (0.28%), Florida (0.36%), Alabama (0.45%), North Carolina (0.47%), Tennessee (0.48%), and Kentucky (0.49%). Rates in other notable states include Illinois (1.61%), New York (1.55%), Pennsylvania (1.46%) and Texas (1.13%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims for unemployment insurance were unchanged in the June 7 week.
- Total beneficiaries rose by 54,000 in the May 31 week.
- The insured unemployment rate ticked up to 1.3%.

Housing Starts Fell Sharply

Summary

Tom Moeller

More Economy in Brief

U.S. Housing Affordability Declines in April

Charts of the Week: What’s Consensus?

U.S. Producer Price & Core Price Indexes Edge Higher in May

U.S. Initial Jobless Claims Were Steady in Latest Week

Housing Starts (000s, AR)	June	May	Y/Y	2003	2002	2001
Total	1,802	1,970	-2.6%	1,848	1,711	1,601
Single-family	1,489	1,645	-1.1%	1,501	1,364	1,272
Multi-family	313	325	-9.3%	347	347	330
Building Permits	2,077	2,006	12.5%	1,831	1,750	1,637